WSP Global Inc
TSX:WSP
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WSP Global Inc
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[Foreign Language] Good afternoon, ladies and gentlemen. [Foreign Language] Welcome to WSP's Second Quarter of 2018 Results Conference Call. I would now like to turn the meeting over to Isabelle Adjahi, Senior Vice President, Investor Relations and Communications. [Foreign Language]Please go ahead, Ms. Adjahi
Thank you, and good afternoon, everyone. First of all thank you for taking the time to join us today for the call, during which we will be discussing our Q2 performance. We will first make a few remarks, and then we will follow these remarks by the Q&A session. With us today are Alexandre L’Heureux, our President and CEO; and Bruno Roy, our CFO.Please note that we will be recording the call, and we will post it on our website tomorrow. Before we start, I want to mention that we would be making some forward-looking statements and that actual results could be different from those expressed or implied, and we undertake no obligation to update or revise any of these forward-looking statements.With that, I will now turn the microphone over to Alexandre L’Heureux. Alex?
Thank you, Isabelle, and good afternoon, everyone. I am very pleased with our Q2 performance as we have delivered on 3 fronts: financially, operationally, and strategically. Before I discuss each of these elements, I would like to underline the following points.First, building on our Q1, we reported solid second quarter financial results with organic growth in net revenues spanning across all reportable segments and strong trailing 12-months free cash flow.Second, with the recent Louis Berger announcement, we are pleased to report that once we close this transaction, all of our 2015-2018 strategic plan objectives will have been met.Third, at the halfway point of the fiscal year, we are in line with our full year outlook, both from a reportable operating segment and consolidated standpoint. I will touch upon this further after Bruno's Q2 2018 financial performance review.Let me start with a few comments on our second quarter financial performance on which Bruno will further elaborate on later in the call. For the second quarter, net revenues were $1.5 billion, up 17.1% compared to Q2 2017. On a constant currency basis, organic growth in net revenues was strong at 8.7%. Adjusted EBITDA was $169.5 million, with adjusted EBITDA margin reaching 11% compared to 10.7% last year.Finally, our backlog stood at $6.7 billion at the end of the quarter, representing approximately 10.3 months of revenues. Backlog organic growth amounted to 7.8% when compared to Q2 of 2017 and 4.9% for the first 6 months of '18.Second, I would like to comment on our recent announcement to acquire Louis Berger, a U.S.-headquarter leading international professional services firm. This transaction shares a common thread with our previous acquisition. It fits in our strategy both in terms of cultural values and business model. We pursue this acquisition in order to build an even stronger and more diversified business that will create value for our employees, our clients and shareholders. Once integrated, Louis Berger will enable us to strengthen our presence in the U.S. where our workforce will be approximately 10,000 people. Beyond added depth to our transportation team, it will also strengthen our expertise in sectors and services that WSP had targeted for growth, including critical mass in water and environment. We will actually double our headcount in that market segment. Along the same line, Louis Berger will also provide WSP an opportunity to further increase its U.S. federal services presence, serving clients, such as the Army Corp, FEMA and defense information security agencies. Finally, this acquisition will increase our presence in continental Europe, specifically in countries we had previously intended for growth, notably France and Spain. The involvement of Spanish engineering and construction firms in large international project has increased significantly over the last few years. Hence, our interest to have a stronger presence in this country. Similar to the strategy we adopted in Latin America, our objective is to familiarize ourselves with Spain before potentially increasing our presence.In 2015, WSP mapped out a strategy with 5 key objectives to be mapped by the end of '18: to build a workforce of 45,000 employees; to record $6 billion in net revenues, including $1.3 billion from acquisition; to generate adjusted EBITDA margin of 11%; to maintain DSO below 85 days; and to keep our leverage ratio between 1.5 to 2x pro forma adjusted EBITDA.Beyond numbers, when we initially presented our strategic plan, our ambition was to grow in specific regions, namely Canada, the U.S., the U.K., the Nordics, Continental Europe as well as Australia, New Zealand and Latin America. Today, I'm pleased to report that we have delivered on that front as well.In total, since 2015, we will have acquired 24 companies and added more than 15,000 people to our workforce. It should be noted that the majority of these transactions were financed using our available cash and credit facilities.Once the Louis Berger acquisition closes, we anticipate we will have met all of the above 5 key objectives of our 2015-2018 strategic plan, during which time we also posted constant annual organic growth in that revenues. All this while generating EPS accretion and paying out a yearly dividend of $1.50 per share to its shareholders.Last, in the past years, we have fast-tracked our strategic plan and laid stronger foundations for the next phase of our growth, which will be presented in greater detail at the beginning of next year. Our teams are currently working on the 2019-2021 strategic plan, which will incorporate the objectives, strategies and targets of the combined entity for our people, our clients, operation and our expertise.As part of this exercise, we have also solicited the input of our key stakeholders, our leaders across the world, the financial and investment community and our clients. In consideration of the feedback received, the message conveyed is quite clear. We need to stay to course while remaining agile to respond to varying changes and opportunities. Recent history has demonstrated WSP's resolve in remaining a pure play consultancy firm with no construction risk. We have no intention of moving away from this operating model. You can therefore expect continuity and clarity in our future strategic goals.Bruno will now review our Q2 financial results in more detail. Bruno?
Thank you, Alex. Good afternoon, everyone. I'm pleased to share results for the second quarter of 2018. Overall, we are pleased with our Q2 financial results. Organic growth in net revenues stood at 8.7%. Adjusted EBITDA margin stood at 11%, in line with our expectations. End-of-period DSO improved by 3 days coming in at 79 days, slightly better than anticipated. Trailing 12-months free cash flow remained strong at $337 million or 153% of net earnings attributable to shareholders. Finally, our balance sheet remained solid with a net debt-to-adjusted EBITDA ratio of 1.8x.Let me dig into the details. For the second quarter, revenues and net revenues were $2 billion and $1.5 billion, respectively, an increase of 18% and 17.1% compared to 2017. Adjusted EBITDA for the period stood at $169.5 million, up $29.2 million or 20.8% compared to Q2 2017. Adjusted EBITDA margin reached 11% compared to 10.7% posted last year. Our effective tax rate was 24.1%, in line with expectations. Adjusted net earnings stood at $81.2 million or $0.78 per share, up 24% and 21.9%, respectively, compared to 2017.This was mainly due to growth in net revenues and improvement in adjusted EBITDA margins. However, as in Q1, earnings were negatively impacted by an increase in finance expenses compared to last year due to higher period debt fluctuations and higher borrowing costs.Our backlog stood at $6.7 million, representing approximately 10.3 months of revenue, stable as compared to Q1 and up $842.3 million or 14.4% compared to the same quarter last year. Organically, our backlog grew 7.8% when compared to last year and 4.9% for the first 6 months of this year.Now let's move to our regional operational performance. Organic growth in net revenues from our Canadian operations stood at 6.6% spanning across most market segments. Adjusted EBITDA margin before global corporate costs came in at 13.8%, 100 basis point improvement compared to the same period in 2017, mainly due to higher utilization rates and improved project delivery.During the quarter, we were selected to conduct the initial phase of the environmental assessment for the Kitchener-Waterloo to London segment of the Ontario high-speed rail project. This 2-year study represents the first substantial HSR, and it's taking in Canada and the formal start of one of the largest infrastructure projects in Ontario.Our Americas reporting segment experienced organic growth in net revenues of 9% in Q2, stemming mainly from our U.S. operations. The U.S. Transportation & Infrastructure market segment had a very strong quarter, posting organic growth in the high single digits and winning significant contracts in New York State and in California. Adjusted EBITDA and adjusted EBITDA margin before global corporate costs were the highest amongst our reportable segments coming in at $74 million and 16.7%, respectively, compared to $61 million and 15.6% for the same period in 2017. Improvement in both metrics were anticipated and mainly due to improved utilization and project management.In Chile, we were awarded the engineering environmental contract for the Eolic Park Llanos del Viento project. This award is a direct result of collaboration between POCH and ConCol, which were acquired last year and legacy WSP.Our EMEIA reporting segment delivered organic growth in net revenues of 9% led by our U.K. Nordic operations. Adjusted EBITDA margin before global corporate costs stood at 9.6% of net revenues for the quarter. In the U.K., Greenlink has appointed WSP to its $400 million electricity interconnector linking Wales and Ireland, one of Europe's most important energy infrastructure projects.Our APAC operating segment posted organic growth in net revenues of 10.6% and adjusted EBITDA margin before global corporate costs of 10%. This performance was mainly driven by our Australian operations, which posted double-digit organic growth in net revenues. Our Asian operations posted fat organic growth in net revenues, slightly better than anticipated.Overall, operating results from our Opus New Zealand operations, acquired in Q4 '17, came in slightly better than expected. In Australia, our environmental team is undertaking the Air Quality Impact Assessments for the first 12 months of construction of the Melbourne Metro Rail project, one of the largest infrastructure projects ever undertaken in Australia.Turning to our balance sheet. We ended the quarter with a DSO of 79 days, 3 days better than the same period of last year. Incorporating the full 12 months of adjusted EBITDA for all acquisitions, our net debt-to-EBITDA ratio came in at 1.8x. We also declared a dividend of $0.375 per share to shareholders on record as of June 30, 2018, which was paid on July, 16, 2018. With 49.8% dividend reinvestment plan participation, the net cash outflow was $19.5 million.This concludes my remarks. Alex, over to you.
Thank you, Bruno. Before we open the line for questions, I would like to provide some color on our regional outlook for the remainder of the year. For the second half of the year, we expect our Canadian operations to build on their strong H1 results and continue to anticipate full year organic growth in net revenues in the low to mid-single-digit range.In the Americas, infrastructure spending in the U.S. remains robust, and the POCH and ConCol acquisition-related synergies should lead to good operating margins. We expect organic growth in net revenues to remain solid in Q3 2018. However, as previously indicated, we also anticipate posting negative organic growth in net revenues in Q4 of '18 due to the nonrecurring nature of FEMA net revenues recorded in Q4 of '17, which we disclosed as of last year.As a friendly reminder, we posted 23% organic growth in the U.S. in Q4. As such, full year organic growth in net revenues for the Americas segment is expected to be in the low single digits.In the EMEIA region, our 2 pillars, the Nordics and the U.K. have delivered results in line with our expectations to date, and we expect them to continue to do so in the second half of the year.On a consolidated basis, we continue to forecast our EMEIA region to post organic growth in net revenues in the low single digits.Overall, the outlook for the APAC region remains positive. Australia, on the strength of the Infrastructure & Transportation market segment, is tracking to deliver full year organic growth in net revenues in the mid- to high single digits. In Asia, the continuing -- continued slowdown in the building market will likely lead to negative organic growth in net revenues.However, on a consolidated basis, we anticipate the APAC region to deliver organic growth in net revenues in the low to mid-single digits. Based on this continued momentum in the business lines and regions, we are therefore reiterating our full year 2018 outlook.I would now like to open the line for questions. Thank you.
[Operator Instructions] [Foreign Language] Your first question comes from the line of Yuri Lynk, Canaccord Genuity.
Alex, just looking beyond 2018, you seem to be well on track to meet the -- your margin goal of 11%. Just broad strokes, do you see the ability to take the adjusted EBITDA margin in excess of 11% in the future, considering the pieces that you have in place now, including Louis Berger?
Yuri, historically, and you look back, now -- we've been doing like 3-year strategic plans for a while now at least. We started that in 2010. And historically, we've always had the ambition to increase our profit margin, and frankly, I believe that's -- that should always be our goal. So I think, broadly speaking -- and we are right now working with the region to align and refine our strategy for the next 3 years. And clearly, I'll be able to report back at the beginning of next year of what the real plans are. But I think it's fair to assume that the ambitions will always be to improve our margin profile. So we'll work with that in mind.
Okay. Very good. Second one for me. It looked like the G&A expense was about 13% of net revenue. It looked a little high to me. Was there anything special in the G&A expense in the quarter?
Yes. So Bruno, I'll let -- Yuri, I'll let Bruno answer that question.
Yuri, simple answer is long-term incentive plan program due to the increase in our stock price. So with this, it took an uptick. The answer is essentially there.
Got it.
And it was material.
Yes. Can you quantify it?
Typically, Yuri, I mean, I -- we wouldn't want to go into the details of quantifying the LTIP performance and on the quarterly basis reporting, the increase and decrease of LTIP expenses. But as Bruno stated, in this quarter, that's really the explanation. I mean, look at the increase in stock price since the beginning of the year. And clearly, with our auditors and the management team, we needed to look at the likelihood of us meeting our -- the expectations and the threshold to pay the LTIP. And clearly, I mean, there's been some changes, certainly, on total shareholder return, and we had to adjust the accrued expenses accordingly.
Your next question comes from the line of Jacob Bout from CIBC.
So just a question on your organic guidance. So appreciate the second half outlook, but if you look a little further out to 2019 and beyond, you're coming off a very strong year. How do things settle out for organic growth longer-term in your mind?
Look, but first of all, Jacob. I mean, look, it's -- I'm not thinking about '19 right now. We're busy delivering '18. We're going to go through our budgetary process in the second half of this year. We're launching the process particularly in September, October. And that will be a real opportunity to engage with the regions to see what 2019 may look like. But clearly, again, I mean, I think we're looking at the backlog that we have right now, and with what we know today, I think the future for the company is looking bright at this point in time. That's all I can say. But we will be providing as we always do at the end of each fiscal quarter, our guidance for the following year. And we'll do the same next year.
So clearly, not much of an impact on tariffs or these trade wars? Or are you seeing any impact on a go-forward basis at all?
Well, are you referring to the Saudi-Canadian conflict right now? Is that what you were referring to or overall? And the -- that agreement with the...
Yes, more of the Trump effect. I know Saudi is quite a -- quite small. But I mean, just can you touch on that?
No, the answer is clearly, no, given that 90% -- north of 95%, 98% of our work is done locally. We -- I do not expect any disruption from the after negotiations.
And that's true in the U.S. and the same would be true in Saudi as well.
Well, I wish to answer that question because that question may come up anyway. So I'll take the opportunity to answer it right away, if it's being asked later. I mean, right now, Saudi Arabia represents less than 1% of our total net revenue. We have about 200 people there. So it's -- so at this point in time, it's clearly not a concern for us.
Your next question comes from the line of Derek Spronck from RBC Capital Markets.
The acquisition or the potential or planned acquisition of Louis Berger, was that something in the works for some time? And any concern around some of their past history, legal issues? I know that was many, many years ago. But are you pretty confident around their operational execution?
So this is a real good question. I'll start with the first question and finish with the second one. The -- always, I like to remind our investors that acquisition is not something that you can time. The SIP has to be there. And it's not something that you do overnight. So this is a company that we had targeted as being very complementary to our existing platform. And therefore, I mean, we had initiated discussions more than a year ago. So it's a company, obviously, we knew well. But obviously, to answer your question, I mean, we've been having those sorts of discussions and -- intense discussions for more than a year now. And we felt that now was the right time to close on the transaction, both parties thought that this was the right time for both companies to merge together. So that was the -- your first question. The second question related to ethics and the program they've put in place. Actually during due diligence, as you can imagine, we did look at this extensively. And when we came away from due diligence thinking that they have good processes and good standard in place, and you need to remember that they were under monitorship for many years. So obviously, that creates a lot of good habits, and they've put a lot of good processes in place. So the past is the past. And as you said, it was many years ago, and I'm confident that within WSP, we'll be able to create good synergies together.
Okay, that's great. And you outlined some of the cost synergies that you're anticipating to achieve. How about revenue synergy? Are -- do see a lot of revenue synergy opportunities with Louis Berger?
In the past, we've never quantified revenue synergies because they are quite difficult to forecast. But the reality is if you look back at the history of the acquisition we completed, we've never quantified revenue synergies, but that doesn't mean we don't believe in revenue synergies.We actually believe that, like our past acquisition, the Louis Berger acquisition is a story of revenue synergies, and we will be making sure that we connect people Day 1 after closing to get down to work and introduce our teams to each other, look at the scope of services we can offer to existing clients and to new clients and hopefully create those revenue synergies that you were talking about. The other point I would make also is that we are entering in new territories and in some fashion with Louis Berger. I mean, they have a presence in the federal business. We also have a presence with FEMA. We've done a lot of FEMA work historically. But with Louis Berger, we are entering adjacent markets that are, in my mind, complementary to what we do. And that will be a good leg ways into understanding the federal market and see if it's for WSP in the longer term. But right now, I feel confident that this should be a positive outcome for the company.
Okay, great. And just one last one for myself. Does that kind of put a pin into acquisitions for the next few quarters? Or are you -- still have a pretty healthy pipeline that you're looking into and still active within your M&A discussions?
Yes. My job and our job is just to keep a healthy pipeline in the mix. So we've been having a healthy discussion over the years. And I think last quarter, I was telling you that the pipeline is as good as it was years ago, and I continue to believe that. So as I said before, we cannot time acquisitions. We need to be opportunistic, and that's what WSP -- that's what we've been doing in the past. So time will tell. But right now, I mean, obviously, we want to do a good job in integrating Louis Berger. We want to deliver the goods for our shareholders and create shareholder value. But clearly, we're going to -- not going to stop having good dialogues. I mean, you look at our leverage ratio, which is well in the sweet spot of where we want it to be. Post-acquisition, we'll be below 2. So I think we have a strong balance sheet. We are experiencing a good year. So we'll continue to be on the watch for acquisition and complete them when the time is right.
Our next question comes from the line of Mona Nazir from Laurentian Bank.
So my first question. I'm just -- overall, in the industry, you were seeing increased competition, and we're hearing of pressure on fees in certain areas. And I'm not sure if you have this paper on hand. But I was just wondering what your average fee per project is. And I'm really just trying to get a sense of if it has trended up over time.
Yes. Mona, this is a very difficult question to answer. Today, WSP has -- and that's a fact, today WSP has 100,000 live projects around the world. And clearly, in different countries, we have different businesses with the different profile of businesses. So it would be extremely difficult for me to give you the average size of any given jobs at any given day, given the number of projects that we have. What I can tell you, though, is that when we think of our backlog, we are always mindful that in order to be successful, we need to have smaller-size, medium-size and larger-size projects in order to be successful. So WSP is not only bidding on big jobs and iconic projects. We believe that smaller-size jobs can lead us to bigger-size jobs. And therefore, we're very mindful of making sure that we do pursue the smaller-size assignment to the bigger-size assignment.
Okay. That was helpful. And just secondly, at the Analyst Day last year, you spoke about a strong presence of local firms in specific geographic regions, such as the Nordics and your desire to penetrate and become a top-tier local player. And speaking of the Nordics, I saw a profile in a significant peer company where they touched on continuing 10% kind of organic growth and double-digit margins. And we've spoken about this previously, but looking at the strong performance from all of your different geographic regions, what areas have you established a top-tier local presence? And what are some of the areas or regions that you remained focused on expanding?
That would be -- that would take me a long time to answer this because we are in so many different markets and so many different geographies. We are in 40 countries. But what I can tell you globally, Mona, is that pretty much everywhere right now, in our major hubs, we have a leading presence in transportation infrastructure. So every project and every of our major hubs, as I stated, we can compete and be a top-tier player. I think this is equally true in property and building.In property and building, there is not one single high-rise or building project in our major operation where we cannot compete and have the aspiration to win this assignment.Then when you move on to the other end markets, we have a very strong presence, and we have north of 5,000 people in environment around the world. So we do have a good presence, but is it a global presence in every of our hubs? The answer is no. I think in many of our countries, we do have a leading presence. But in some others, we are subscale and in the years to come, we're going to have to work at increasing our presence in environment, in water, in power and in renewable energy and a few other adjacent markets. That's not without saying that we're going to continue to grow our presence in transportation and property and building. These are our core end markets. But I would say that globally speaking, I think we are a top-tier player in the first 2 segments, a very solid player in the third and the other ones, over time, we will aspire to grow our presence.
Okay. And just lastly for me. Given your comments around the guidance and that you're keeping it unchanged for this year and your expectations for 1% to 4% annualized organic growth, given the first half of the year, 6.7%, do you think a more likely scenario for the back half of the year would be that you hit the materially lower 1.5%? Or is it possible that you could come in slightly ahead or ahead?
Look, there would be nobody happier than me if we could beat this. And if we could surprise ourselves, I'd be the happiest man in the room. But having said all of that as I stated before, in the U.S. last -- in Q4, we generated 23% organic growth. So you look at the numbers for the U.S. last year, that's -- it's huge, and it's a tough data to beat essentially. So at this point in time, you look at the remainder of the year and you look at -- understandably the U.S. will be generated -- generating negative organic growth in Q4. And right now, with what we know today, I'm comfortable with the guidance that we provided. But if we feel in Q3 that we will be exceeding this, we will be the first to let you know.
Your next question comes from the line of Michael Tupholme from TD Securities.
A number of VNC companies have talked recently about seeing increased resource sector, project activity in Canada. Wondering if you can talk about whether or not you have seen the same thing and if that was a contributing factor at all to the relatively strong organic growth you saw in Q2 for Canada.
The answer is, yes. Right now the resource sector in Western Canada not only has stabilized, but we've seen a bit of a pickup in activities. So this is holding well for our business. But I wouldn't suggest, however, that this was the reason why we had good organic growth in Canada. Eastern Canada performed extremely well last year, and it's -- has continued to perform very well for us in Ontario and Québec right now. So that's good news because now we have a more stable environment. But that's not the determining factor in the strong organic growth in Canada this quarter.
Okay, that's helpful. Secondly, you incurred certain IT outsourcing costs this quarter. It sounds like you expect some additional costs of that nature in the second half. Can you just elaborate on the IT outsourcing initiative? What it covers? And maybe talk about what you do expect in terms of additional costs in the second half and then also the kinds of savings you'd expect to realize.
Good question, Mike. Bruno here. So as you've noticed, we've incurred $6.8 million year-to-date related to IT, INO -- and to an outsourcing program we have been working on. Look, our estimate is that we'll probably land the full year somewhere between $12 million to $15 million in terms of expenses. This was included in the $40 million to $50 million acquisition and integration outlook that we provided. We didn't core value the INO back then because frankly we were still working on the financials, and the decision hadn't been final when we issued our guidance. In terms of savings, look, you can safely assume a year's worth of -- you can safely assume the savings to be about -- worth about a year's of our cost incurred. So $12 million to $15 million wouldn't be in bad range of savings starting in 2019. And this covers IT infrastructure. So some help desks, some at the bandwidth and some of these things. IT development is still kept in house. And thanks for your question.
Yes. No, that's helpful. And then just lastly, in terms of the additional billable days in Sweden in the quarter, what sort of an impact would that have had on the EMEIA organic growth rate, if it's at all material? And then secondly, how do we think about sort of the reverse impact or the negative, the drag impact in the third quarter for EMEIA?
Let me dig that out. I'll come back to you later in the call.
We'll be looking to the answer, and perhaps we can take other questions in the meantime while he's looking for the answer.
Our next question comes from the line of Benoit Poirier from Desjardins.
Just to come back on the EBITDA margin improvement, you showed 11% in Q2. So obviously, an improvement versus year-over-year. Assuming the 11% for the full year, where do you see the greatest level of improvement in the back half?
Benoit, now look, the answer is across the patch. I mean, right now, all of our major hubs are doing well and are improving. When you look at the margin profile in the U.K., Canada, U.S., Australia, and I would add to this New Zealand and a few others, I mean, right now I would say that across the patch, the businesses are working hard at improving the margin profile.
Okay. Perfect. And one quick question about the global corporate costs. So you touched a little bit about the stock performance. So do you think that the $22.7 million is more kind of the sustainable rate we might see in Q3, Q4?
I'll let Bruno answer that question.
Look, it depends on the stock price. So it's not a bad number.
Generally speaking, Bruno, it's a fair assumption. And by the same token, I think, Bruno talked about the increase in the interest expenses that is -- given that the interest rate environment and the fact that there's been interest hike -- rate hikes -- I'm sorry, increases. I mean we have seen our interest expenses increasing over the last few quarters. As a friendly reminder, we have U.S. debt and Canadian debt, and there's been some increases. And that's also probably the reason why there is a dislocation between some of your numbers that you have been reporting and what we've been reporting.
Okay, perfect. And you touched about the energy and resources, oil and gas obviously improving. Does it change your thinking in terms of M&A, let's say, in the next 4 to 5 years to maybe grow a little bit more your exposure to energy resources? Or in the meantime, you don't feel -- look for M&A in that segment?
Look, Benoit, we did. We did complete a transaction in the energies -- energy space in the past. And if you recall, what we stated is that our strategy is quite clear: in every geographies or vertical where we operate, we want to be a top-tier player. So if you want to have -- if you have the aspiration to be a top-tier player in a resource-based country, you have to have exposure to resources. And that's why we've increased our resource exposure in 2014 in Canada. That's why we have mining exposure in Australia. So my answer to you would be that where it's needed, we're going to be looking to be competing, but it's not top of agenda. Our core markets are transportation infrastructure, property and building, environment, and what I would consider to be more top of mind in the energy space would be power, transmission, distribution, renewable energy, and that's what I would consider to be more strategic to WSP.
Okay. That's great color. And lastly, could you talk a little bit about the growth opportunities you see these days with the data room center? It seems that it's a growth opportunity for you.
It is. It is a great opportunity. I mean, we do work -- I'm not allowed to talk about the clients that we're working on, given the NDA that we've signed. But we are developing, right now, worldwide expertise and mission-critical work, such as data center for those big tech companies. And we are working now in a number of jurisdictions, and that is growing every year, and we are extremely pleased to support those department on that area.
A quick -- just to complement the answer on the earlier question on the hours in Sweden. It was about 10 hours' difference that will be reversed in the third quarter. And if you go to the MD&A, we say that our year-to-date Q3 EBITDA margin will be in line with year-to-date Q3 2017. So the offset in margin in Q2 will be offset in Q3.
You're next question comes from the line of Mark Neville from Scotiabank.
I guess, first, just a housekeeping question first. To the -- I can understand that you appreciate the organic revenue decline in Americas in Q4. But I'm just curious, would that be margin accretive or dilutive, the absence of that work in Q4.
It's -- it should be relatively stable from a margin point of view.
Got it. Okay. And then I guess just one bigger picture question. When you put out your 3-year plan in 2015, I think since then, your employee base has grown 50% or 60%. You've gotten much more diversified. Cash generation's improved. So as we look forward to the next plan, I'm just curious, has your appetite for the leverage go up against given this -- the improvements in the actual business itself.
To answer this question, I think we need to look back at the history. For those of you who are familiar with the company and since our IPO in 2006, if you look back from 2006 to 2011, given that we were building our national platform in Canada, we were quite -- I mean, we've always been a very conservative management team. So we've always been conscious of not having too high of the leverage ratio. So the use of debt during those years as we were building a national platform was we're never exceeding 1. And every time we were getting to the -- to a ratio of 1x, we were working hard to decrease it and get back to a more reasonable level.When we completed the acquisition of WSP in 2012, we went above 1x. If my memory is not failing me, we came out of the transaction 1.5x of leverage. And as we moved and built our platform and more resiliency in the platform, we did and completed the PB transaction. We came out of the transaction at 2.25. And when we did MMM, came out, if I'm not -- again, my memory is not failing me, though, at 2.3x. So what I am saying is that as we have built resilience in the balance sheet, we have been more willing to use more of our balance sheet to complete transaction.And if you look back at the last 3 years, with the exception of -- at some point in 2015, when we did our last bad deal, we've been using our credit facility all the time to complete those acquisitions. And since our IPO in 2006, this has been the longest period where we haven't used the use of the capital market to raise equity. So we haven't raised equity in 3 years now, something that never happened before in the history of the company since the IPO. So hopefully that gives you a bit of flavor that we are willing to take on more debt. Having said all that, we are also mindful and as I said before, we are a conservative management team, and we always like to keep dry powder, should we need to go through a rough time but also if we want to be opportunistic on the acquisition front.
And just to complement that, keep in mind that we're now at over $330 million worth of free cash flow trailing 12 months. So our ability to self-finance these acquisitions is much stronger than it was a few years back.
Your next question comes from the line of Frederic Bastien from Raymond James.
I think Mona tried to get this out of you already. So I'll ask a bit differently. Can you speak to the progress you're making, growing market share in Sweden and other Nordic countries? I think it was clearly a focus of yours last year?
We are, Frederick. And I'm sorry, and I apologize, Mona, if I didn't answer the question properly. We are growing our market share right now. I mean, we are -- and essentially, it's -- you look at the GDP growth in those countries and you look at the rate we've been going, de facto right now, we are increasing our market share in the country. So we have been successful in increasing our part of the pie in those countries.
And what do you reckon is making the difference or is contributing to that market share growth?
I think it's mindset. I think it's leadership. I think it's our brand. Our brand is playing a lot into this. We like to -- not we like, we believe that we are the one-stop shop when it comes to looking for trusted adviser who can assist clients in reaching and essentially executing on their ambitions. So I think that's playing a lot, and you need to remember that WSP has been in the region since the early 2000, so they've been in the region for more than 20 years. So we have a very strong and well-established brand in the region. And I think that's playing into it.
Yes, Magnus and our local team have done a really good job at tracking, developing and retaining high-quality engineers. And that's a nice virtuous circle that we've managed to build, so kudos to local team.
Great. My other question still within the EMEIA region. A lot of moving parts of that region, lots of countries contributing. Can you provide a bit of an update where your South African business is and potentially also the Middle Eastern business in general?
So in South Africa, we have approximately 600 people. Since the World Cup, it has been challenging. It has been a challenging environment. That's the truth. Having said all that, I mean, the company and the operation and the team should be commended for their hard work. Despite a very challenging environment, the South African business is making money. Is it making money at the level that we would like it to be? I think, the answer is, no. But this is certainly not self-inflicted. It's because of the environment where we operate right now. So that's our South African business. In terms of the Middle East business, we really like our Middle East business. We are a top-tier player in the property and building sector. We have a leading presence in the UAE. We have also a very strong presence in Qatar, and the company is doing well right now in the region.
And your next question comes from the line of Maxim Sytchev from National Bank Financial.
I just had a question on the water market because you've, sort of, qualified it as one of the reasons why you looked at Louis Berger. And correct me if I'm wrong, but I think overall, the industry has been somewhat disappointed over the last couple of years in that vertical specifically. Any tangible catalysts that you guys are seeing on the horizon to see that inflection point?
Talk about the federal space, Max?
Water.
No. Water specifically, yes. Sorry.
Okay. Well, first of all, I mean, within WSP, given the scale that we have in the U.S., we combine water and environment together. Should the scale change eventually, our footprint is changing, I think probably we would be separated or we would separate water from environment. Right now, we did acquire in Louis Berger more environment than we acquired water. We call it Water & Environment, Max, because of the fact that we've combined this in the U.S. But truthfully, in Louis Berger, we acquired more environmental skills than water, just to be clear. And I should have mentioned that at the beginning of the call. So -- but that -- but then I would add to this that water is a -- it depends where you look. The water sector can be promising and can be a very good end market. It's just that some company would -- will decide to have a service offering that will be obviously integrated, providing engineering and construction and some others. And our peer group will choose to offer water services but just on the consulting side. And if you look in the space, you'd find that water can be a good end market, provided -- that's our belief, anyway. And I can be proven wrong that you offered just on the engineering side.
And we have no further questions at this time. I will now call -- turn the call back over to the presenters.
Okay. Thank everyone for attending the call. Today we were taking the call from London that I have on myself, so I would like to wish you a great afternoon. And I look forward to updating you on our next quarterly results in Q3 in November. In the meantime, have a good rest of the summer, and we'll talk soon. Thank you very much. Bye-bye.
This concludes today's conference call. You may now disconnect. [Foreign Language]