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00:00Louis, thanks very much for joining us and being here in New York.
00:05Atkins Realis, as many in the audience know, is an important player in civil engineering
00:10and in the nuclear business, which we're going to get to.
00:12These are hot areas for discussion.
00:17But first of all, I want to ask you about your return to the company.
00:21This is your second go-around at Atkins Realis.
00:24You spent some time in the pension world in between.
00:27And as you return, you're responsible for, among other things, M&A.
00:33So what does the acquisition environment look like right now in the engineering space?
00:39And what are the capabilities that the company is looking for?
00:44First of all, thanks, Derek.
00:46It's always good to be back in New York.
00:47Good to see you.
00:49This is week seven, so I'm going to give you in-depth perspectives.
00:54It's an interesting time in the engineering space.
00:57So as you know, it's a very fragmented industry, which probably will go the way of most industries
01:04and gradually consolidate.
01:06What we're seeing right now is there is a lot of M&A activity.
01:11We also have private equity funds that are coming in and trying to sort of roll up,
01:17which is going to be interesting to see, frankly,
01:19because typically engineering firms are not that easy to integrate.
01:24So if the private equity firms do the real work of actually integrating,
01:29then you get, rather than having small-sized firms,
01:32you're going to have medium-sized firms that can then be joined into the majors.
01:36If they don't, and they just do a bit of fancy engineering,
01:41then what we'll have is companies that look big but are really fragmented
01:45and will require a lot of integration.
01:48So I think it's an opportune time in the market.
01:52Multiples have been going up, which is never helpful when you're a buyer,
01:56helpful if you're a seller, but I tend to be on the buying side,
01:59so I take a bit of a break on that.
02:03The company itself is in a great position.
02:06As you saw, we've reduced, we've paid down debt.
02:09We sold the 407 north of Toronto for $2.6 billion
02:14to reduce debt on top of that by another $900 million.
02:19Our stock price is not bad,
02:24as everyone who always comes on stage also is still underpriced, but obviously.
02:28But I think we have a currency with which to deploy in acquisitions.
02:32I think if you look at the way our company is set up,
02:35we have essentially pretty much the full spectrum of capabilities,
02:41but we don't always have the full spectrum of capabilities in every jurisdiction.
02:45So our M&A strategy is going to be one primarily of being very disciplined,
02:50tuck in acquisitions, and the definition of tuck in can vary,
02:54but essentially trying to close out geographical white space.
02:59The David Evans acquisitions was an example of that,
03:03where the U.S. northwest was an area where we had less presence.
03:08Post-David Evans, we have a better position,
03:10and that allows us to leverage the full capabilities of the firm
03:13wherever those capabilities may sit, servicing clients in the northwest.
03:18So it's been a theme already today is government spending, infrastructure,
03:25some of the big themes driving things this year.
03:33Military spending, a lot of this activity is happening in the markets
03:36where your company operates.
03:39So what can Atkins Realis do to get involved?
03:42What are the areas where you'll play, for example, in military and infrastructure?
03:47What are the areas where you won't play?
03:50So great question.
03:51So one thing is, and I think part of the reason why we're hearing a lot about infrastructure,
03:55so infrastructure and defense are somewhat related, right?
03:58So maybe I'll start by explaining why there's a relation.
04:00So people have focused, for example, in Canada on the message of we're going to actually meet the 2%,
04:06then we're going to exceed the 2%, and we're going to go to 5%.
04:09But the real way to think about it is we're going to go from 2, or 1.4 to 2, 2 to 3,
04:16and then the 3 to 5 is essentially military adjacent thing.
04:19So it is infrastructure.
04:21It is making sure that your power grid is secure.
04:23So there are elements there of resilience.
04:26There are elements in there of cybersecurity, which count in the 5% as it's defined, right?
04:32In terms of pure infrastructure, so Canada has a deficit of about $360 billion Canadian dollars of,
04:40so if you look at what we need to spend just to have the infrastructure in the shape it should be,
04:46put it this way, our highway system was designed in the 50s, 60s, 70s,
04:50so all of that is coming due, if you will.
04:53So the rule of thumb usually is if something is true in Canada, it's true times 10 in the U.S.,
04:59and the U.S. is about $3.7 trillion U.S. dollar deficit,
05:02and in the U.K., the U.K. is about twice as big as Canada,
05:05so you're talking about 725 billion pounds of infrastructure deficits.
05:11All of that needs to be built, needs to be built better than it has been,
05:16needs to be built with different standards of resilience as well.
05:18One of the elements of resilience is the climate patterns are changing,
05:23so you do need, you know, a good example is you don't build a storm sewer today
05:27the same way you built a storm sewer 20 years ago
05:30because the way the rain comes down is very different, right?
05:33So you have to adapt for that, and in that, you also have to adapt
05:38when we think about the power infrastructure, for example,
05:41to we are in a world that is a bit more unruly
05:44where you do get all sorts of aggressions, cyberattacks or whatnot,
05:51and you do need to protect against that.
05:54So for a company like ours, so obviously civil engineering is something we do,
05:59but our range of civil engineering is quite broad, right?
06:03So we do, well, obviously we'll do, you know, we'll talk about nuclear, I'm sure,
06:07but we do power grids, we do roads, we do bridges, we do cybersecurity.
06:13We give, we are giving advice to some governments on their cybersecurity needs,
06:19their resilience needs.
06:21We are helping with disaster relief in the United States.
06:24All of that is sort of playing to strengths that we have, right?
06:28On the defense side, obviously you think about, you know,
06:32we're going to need submarine pens, we're going to need air bases.
06:36But we also work, for example, we help with the maintenance
06:40of some Royal Canadian Navy vessels,
06:43and we help with the maintenance of some British Royal Navy vessels as well.
06:48So if you think about something like the ANCUS deal,
06:51there's something where you have British technology helping Australia,
06:55that is something we can play a role.
06:57So our remit is actually quite broad.
07:00Let's talk about AI for a moment.
07:04It's, you know, having its impact early days yet on all sorts of industries.
07:10What sort of impact do you see it having in the engineering business?
07:15How do you think Atkins Realis might use it?
07:18So I'm going to break down AI into five different buckets.
07:23The first bucket is, I would say, we always have to be careful.
07:26There's a lot of hype out there, right?
07:27So you have a lot of people who are, some of our peers,
07:31but companies in every industry that are talking about their AI noose.
07:37And sometimes what you realize when you dig down is that means
07:40they're using Microsoft Copilot in the office, right?
07:42So, you know, that's not quite impressive yet.
07:45So remove the hype for a second.
07:51On the corporate side of things, I think there is vast potential for AI to help us be more efficient on,
08:00I'm going to say, the HR side, the finance side.
08:03So a lot of back office functions.
08:05Frankly, the wind work side as well.
08:06So it allows us to, you know, to me, AI is, like, the key point is how do you industrialize,
08:14how do you automate, and what part does AI play into that?
08:18So AI is sort of the end of that chain, not the beginning of that chain.
08:21So there's always room to industrialize further your back office functions, I'm going to say,
08:26and create efficiencies that way.
08:28We at Atkins Realis have gone through, in my past incarnation,
08:32we went through quite a bit of a transformation program and took out quite a lot of costs, right?
08:38So that is never ending.
08:40You always have to look at your costs every day is a new day.
08:45But, you know, I'll give you a good example of a tool that we use where you can come into a building site
08:50and with your phone sort of scan with your camera,
08:54and then we have an AI tool that will identify safety deficiencies.
08:58Does that replace the operators on the ground doing the right thing?
09:02No, but does it help them?
09:04Yes, it does, right?
09:05So I think that's a good, useful way to think about AI.
09:09When you turn it into on the engineering side, one of the big concerns is always on the engineering side,
09:16and, you know, we all drive on roads, on bridges, we all live in buildings,
09:21and some of us may live close to nuclear reactors, so you'll be thankful for this.
09:26In engineering, quality control is very important.
09:29You do need to have an engineer that can trace it all the way back.
09:33So to say, well, congratulations, Derek, your new bridge has been entirely designed by AI,
09:38following an algorithm that we're not sure about, but it's going to be fine.
09:43That obviously wouldn't work, right?
09:45So if you think about how AI probably develops in engineering, it's probably more a blue team, red team issue.
09:53If you have your team of engineers building and designing the way we're used to,
09:59again, there's automation, and there are tools that accelerate the work.
10:02What you can have is a red team that's the AI that's saying, okay, how would you design the bridge?
10:07And then that allows you to compare and contrast and make sure that you haven't missed anything,
10:10or make sure that sometimes the AI may come up with something, an interesting twist.
10:15And you can then reverse engineer that twist.
10:17But what you can have is to say, there's an algorithm.
10:20I don't know how I was trained, but it sort of designed it this way.
10:23So I suspect that's going to mean that adoption has to be very controlled.
10:29And within Atkins Realis, we do have some pilots to make sure that we are controlling how it's going.
10:34The last two points, I'll say, is on the service side, again, we are advising, for example,
10:39the UK government on their AI approach within some ministries of the UK government.
10:47So obviously, as there are more things AI, our services are being requested.
10:53And the last bit, of course, is on the nuclear side, we think that, you know, right now in the U.S.,
10:59there's 11 gigawatts that is being used just to power data centers,
11:02and that's expected to be 42 gigawatts in 2030.
11:06So Ada was mentioning a bit earlier, obviously, whatever you do with data centers.
11:12So a query using artificial intelligence uses 10 times more electricity generally than your normal Google search.
11:21So all of that also for us, there's also a bit in there, which is, well, you need power to power these things.
11:26And thankfully, that's something we know a bit about.
11:28Yeah, well, it's important that we talk about nuclear, because that is a differentiation point for Atkins Realis.
11:33You actually own the technology.
11:36How far can you go with it?
11:38How much potential does that business have?
11:41Well, yeah, what can you do with it?
11:43It's exciting times, very exciting times.
11:45So our backlog on nuclear is up by 223% year over year, which is, in any given year, that's a good number.
11:55If you think about the way we were thinking about nuclear but a few years ago, we were thinking about there was a lot of decommissioning work.
12:02So right now, decommissioning is still one thing we do.
12:05We're decommissioning Sellafield in the U.K.
12:07The thing that has come back is extension.
12:11So we're extending the life cycle of Darlington, Pickering, and Bruce Power in Ontario.
12:17So Ada mentioned a few of those.
12:20Quinchan in China.
12:22Cernovoda in Romania.
12:24So those are extensions.
12:25So, again, back to, if you think about a few years ago when Angela Merkel then announced Energiewende in Germany and saying we're going to go move away from nuclear, well, to some extent, I would say we now have an Energiewende 2.0, which is we're shifting back to let's bring back the nuclears.
12:45So extension of existing plants.
12:48We have a new can-do in Cernovoda as well.
12:51That's on the go.
12:52We have other builds using different technologies, Sizewell C, Inkley Point C in the U.K.
13:00So there is going to be a lot of new builds using various technologies.
13:04And, again, we do own the can-do technology, but we also work with other technologies as well.
13:10One challenge that we're going to face as an industry is, if you think about it this way, in the 40 years of the first nuclear phase, 112 reactors were built in the United States.
13:21By four OEMs.
13:24The plan right now is calling for 300 by 2050.
13:28So there's going to be a lot of demand there.
13:31So I've covered decommissionings.
13:33I've covered life extensions.
13:34I've covered new can-dos.
13:36I've covered new reactors that are not can-dos.
13:38We're also developing MONARCH, which is sort of the next iteration of the can-do technology.
13:43On top of that, we are involved in several SMRs, small modular reactors.
13:47And we are also supporting some clients on their work on fusion reactors.
13:52So I don't think fusion is for tomorrow.
13:53But there is already, you know, engineering work that is being done.
13:56And that we are helping ITER in France and Princeton in the U.S.
14:01So I think it's a broad spectrum because we will need all of that to actually get to the solution.
14:08All right.
14:09We're going to bring you back in 2050 to see how we did on building 300 new reactors.
14:13Indeed.
14:13We've reached time.
14:15So thank you very much for joining us today.
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