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Good day, and welcome to the SNC-Lavalin First Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Denis Jasmin. Please go ahead, sir.
Thank you. Good afternoon, everyone, and thank you for joining us today. With me today are Neil Bruce, President and CEO; Sylvain Girard, Executive Vice President and CFO; and we also have with us today, Ian Edwards, our new Chief Operating Officer. Our earnings announcement was released this morning and we have posted a slide presentation on the Investors section of our website. If you are not using today's webcast, please ensure to open the presentation as we will refer to it during this call. The recording of today's call and webcast will also be available on our website within 24 hours. [Operator Instructions] I would also like to draw your attention to Slide 2 of the presentation. Information in this presentation and remarks made by the speakers today may contain statements about expected future events and financial results that are forward-looking, and therefore, subject to risks and uncertainties. These forward-looking statements represent our expectation as of today and accordingly are subject to change. We disclaim any obligation to update any forward-looking statements except as required by law. A description of the risk factors that may affect future results is contained in the company's MD&A available on our website and in our filings with the Canadian Securities Administrators. During today's call, we will also discuss certain non-IFRS financial numbers. You can find the reconciliation of these numbers with comparable IFRS measures in the presentation and in our MD&A. With that, I will turn the conference over to Neil Bruce. Neil?
Thank you for joining us today. I think I'd be remiss if I did not start by acknowledging that the first quarter of 2019 was uniquely challenging for SNC-Lavalin. We took some reputational hits. This was not as a result of anything big, but it was difficult nonetheless. And I want to begin by thanking our 51,000 employees, our clients, our shareholders and our business partners for their continued and steadfast support. It is because of you that I am convinced that we will emerge better and stronger in the very near future. Over the past quarter, we have begun to execute on the strategy led by our newly named COO, Ian Edwards, in 3 key focus areas: simplifying the business, focusing on capabilities where we excel and growing our business responsibly. All 3 of these objectives have the same goal to strengthen our operational performance and ultimately enhance the profitability and cash generation. This overall strategy is supported by a solid foundation, including a strong backlog of $15.8 billion as of the end of March, including bookings of $3.2 billion in Q1, representing a 17.2% increase year-over-year. A BBB investment grade credit rating, reiterated by rating agency DBRS in April. Under the agreement reached in April to sell 10.01% of Highway 407 ETR for $3.25 billion. This will allow us to deleverage the balance sheet and evaluate which capital allocation strategy would be the most accretive to shareholder value, while still retaining a stake in a cash flow generating asset. Before I turn to further details about our strategy and objectives going forward, I will first spend some time reviewing our outlook and Q1 results, which Sylvain will discuss in more detail. Our first quarter results came in below expectations with an adjusted net loss from E&C of $14.9 million or $0.08 per diluted share. This compares to an adjusted net income from E&C of $89.5 million or $0.51 per diluted share in Q1 of 2018. The loss was largely attributable to Resources. Specifically, we had challenges in the Oil & Gas sector, mainly due to a net unfavorable impact from reforecasted in certain major projects and delays in claim settlements, as well as ongoing tensions between Canada and Saudi Arabia. Of our new sectors, 3 of the 4 performed well. Our engineering design project management segment had another strong quarter delivering $80 million in EBIT. Our Nuclear and Infrastructure, although down year-over-year, had good performance. Overall, we are maintaining our 2019 outlook, which includes the following targets: An adjusted EBITDA from E&C of $900 million to $950 million, an adjusted diluted EPS from E&C of $2 to $2.20 and an adjusted consolidated diluted EPS of $3 to $3.20. We are confident we can deliver on our 2019 goals for a number of reasons. In addition to a strong backlog, including $3.2 billion in new bookings in Q1, we expect the Resources segment EBIT, which does include the company's Mining & Metallurgy and Oil & Gas subsegments, to turn positively in 2019 with a forecast 4% to 6% margin; and higher segment EBIT from our Infrastructure and Nuclear segments compared to 2018, mainly due to a strong backlog across sectors. We are also focused on cost reduction as part of our strategy to simplify the business and drive efficiencies. We are planning to reduce overhead cost by $250 million annually. We expect to realize just over $100 million in savings this year. In January, we began exiting some 15 noncore countries, where we had identified approximately $85 million in unprofitable revenue. Overall, given the challenges faced in Q1 2019, we expect a very modest recovery in adjusted diluted EPS from E&C for Q2 2019, with a more significant ramp-up in the second half of the year as the Resources backlog is rebuilt and we begin to see the impacts of the cost reduction program.I'd like to now spend some time talking about our new strategy and structure. As I mentioned at the top, the company has faced some unique challenges in recent months. The leadership team made an immediate decision to recalibrate and take action by focusing on 5 key objectives: Delivery and project oversight, simplification of sectors and business model, improved capital allocation strategy and cash generation, delivering on our financial objectives and protecting and creating value for all of our stakeholders. We began work right away. In fact, it was a continuation of the work that we did at the beginning of the year in January, starting with restructuring of the business in order to focus on what we do best and where we do it most profitably with the least risk. A substantial initial effort, of course, in legacy mining and Oil & Gas addressing the project issues and identifying the areas for large efficiencies to increase competitiveness while ensuring delivery. On March 28, we consolidated our operating segments down from 7 to 4. EDPM replicating the success and high-performance of our Atkins business; Resources, which brings together all of our mining and Oil & Gas capabilities. Infrastructure, which will focus on projects in North America, a cornerstone of our business, particularly, in the wide [ clean and power ] systems and Nuclear, an important high-performing business for us, with a focus on refurbishments and decommissioning in Canada, the U.S. and the U.K. As part of this effort, we are focusing on our core geographies, and as mentioned, reducing our presence in markets where we have subscale operations, including exiting some 15 countries. Going forward, we have identified our core growth regions as Canada, the U.S., the U.K., the Middle East, Hong Kong as a hub to Asia and Australia. Together with restructuring, our focus will allow further integration across the company facilitating best practices and allowing for more effective oversight, especially in our EPC projects, which now will be carried out only in our Resources and infrastructure sectors. To that end, we've created a new project oversight function, which is part of the executive committee and is tasked with ensuring operational consistency as well as assessing risk. The oversight function will enhance our ability to foresee and fix project-related issues in a timely fashion and will be involved in both the bidding and delivery phases of the business. Going forward, our business will be structured and aligned with generating sustainable and profitable growth. We will focus on building the business where we have a strong market position, clear capabilities in those geographies and the clients with whom we have strong relationships. We believe this plan is the best way forward to deliver value for all stakeholders. So to conclude. We have a clear vision for the business. The company is on a sound financial footing and has a robust business pipeline, including many projects around the world and some of the largest contracts in North America. Importantly, these solid business fundamentals are anchored in our corporate values: integrity, safety, collaboration and innovation, which forms the bedrock of who we are and how we operate. I am extremely proud of the fact that SNC-Lavalin was recognized earlier this year for its best-in-class corporate ethics and compliance program by the Ethisphere Institute. This recognition along with our growing global footprint and work in some of the world's largest and most complex projects is a testament that SNC-Lavalin is positioned as one of the world's leading, fully integrated, professional services and project management companies. Thank you. With that, I'll turn the call over to Sylvain to go over our financial results.
Thank you, Neil, and good afternoon, everyone. Before I get into the financial details, I would like to explain the changes that we made to our segment disclosure, which took effect on Jan 1. Please turn to Slide 5. The segment disclosure note in the company's financial statement reflects the new simplified consolidated operating structure recently announced by the company and the restated comparable numbers. The company believed that this new organizational structure will position it for further improving project delivery as well as driving responsible growth and more consistent cash flow generation. First, we have regrouped certain segments. Mining & Metallurgy and Oil & Gas segments are now merged and called Resources. We also included the Clean and Thermal Power segments into Infrastructure. Additionally, we transferred the infrastructure engineering business unit from infrastructure to EDPM in order to bring like businesses together and allow EDPM's best practices to transfer to infrastructure engineering. Therefore, we now have simplified our structure to 4 segments: EDPM, Infrastructure, Nuclear and Resources. The other change we implemented was to transfer certain corporate G&A cost to the segment EBIT. These costs mainly relate to the different centers of excellence we have around the world that are now allocated to the operating businesses instead of corporate. And lastly, the segment EBIT now includes the contribution attributable to noncontrolling interest before income taxes to better reflect the overall performance of each reportable segment. This means that revenues and segment EBIT is at 100% no matter the percentage we may own for a specific project or subsidiary. For example, Linxon and the CDI joint venture for which we own 51% and 40%, respectively, are now represented in the segments of note at 100%. For your information and ease of comparison, we have included in the appendix of this presentation on slide 13 and 14, the comparative restated numbers for the new segment disclosure by quarter and for the full year 2018. These changes have no impact on the overall EBIT of the company. Now turning to Slide 6. In addition to implementing the simplified operating structure, the company has launched a major simplification and cost reduction program. The objective of this program is to reduce the company's overhead cost structure by $250 million annually. The company expects to realize just over $100 million of such savings during the course of 2019. For Q1 2019, we have recorded an adjusted net loss from E&C of $15 million compared to net income of $89 million in Q1 2018. This loss was mainly due to a lower total segment EBIT, partially offset by a positive corporate SG&A. Total segment EBIT for Q1 2019 amounted to $99 million compared to $229 million in Q1 2018, as 2019 included a negative segment EBIT of $61 million in Resources. This was mainly due to the net unfavorable impact from reforecast on certain major Oil & Gas and Mining & Metallurgy projects and delay in claim settlements. Nuclear and Infrastructure recorded lower segment EBIT compared to Q1 2018, while the EDPM segment had another strong quarter. Total corporate SG&A expenses amounted to $6 million for the quarter compared to $25 million in Q1 2018. The corporate SG&A from E&C was positive, $1.7 million in Q1 2019 due in part to a lower amount of benefits, including the reversal of some corporate incentives and revisions of certain estimates. These reversals were mainly necessary due to the lower share price as of March 31, 2019. Total revenues for Q1 2019 amounted to $2.4 billion and were in line with Q1 2018, as a decrease in Resources was offset by the increase in EDPM. Our Q1 2019 revenues were composed of 75% of reimbursable and engineering service contracts and 25% of EPC fixed-price contracts, same as in Q1 2018. Our backlog was $15.8 billion at the end of March with a book-to-bill ratio of 1.4 for the first quarter. Our bookings for the quarter were $3.2 billion, which includes $1.6 billion in infrastructure, mainly due to the booking of the Trillium Ottawa project, $0.9 billion in EDPM and $0.5 billion in Resources. Our backlog remained heavily weighted in reimbursable and engineering services contracts with 72% versus 28% for EPC fixed-price contracts. I will shortly get into the liquidity and debt ratios in more details. Now moving to Slide 7. I won't spend too much time on this slide. We see the negative segment EBIT in Resources, which we just explained. Nuclear had a lower segment EBIT due to a less favorable business mix and higher forecasted cost on a product nearing completion in Canada. Infrastructure also had a lower segment EBIT, principally resulting from lower profitability and projects from the former Clean Power. Lastly, the EDPM segment had another strong quarter with an $80 million segment EBIT. Turning to Slide 8. In line with expectations, the operating cash flows for the first quarter of 2019 were negative totaling $249 million. This was mainly due to disbursements on the Codelco project -- project, timing of milestone payments on large infrastructure projects such as Eglinton, New Champlain Bridge, Ottawa LRT and the REM and certain delays in claim settlements on some Oil & Gas projects. If we compare to Q1 2018, the increase in cash outflows was mainly driven by a lower EBIT from E&C segments, an increase in restructuring costs, interest paid and a lower income tax received, partially offset by lower working capital requirements on certain major projects. Note that a significant cash consumption related to Q4 revised reforecasted costs on the Codelco mining project will continue to occur in Q2 2019, as we complete the project rollout. For reference, the net impact so far on the termination of this project is a slight positive versus the year-end position for both project EBIT and cash flows. This may evolve as the settlement processes continue with our subcontractors and the client. Moving to Slide 9. Despite the challenges faced in 2018 and in Q1 2019, we have been able to maintain our investment grade ratings as confirmed by both S&P and DBRS, thanks to solid concession assets, our cost-reduction initiatives and the diversification of our activities. Nevertheless, we believe it is important that we reduce our leverage to a more sustainable level. As such, 2019 will be a year of further focus on strengthening the company's balance sheet. As of March 31, 2019, the company had a net recourse debt of $2 billion, and $1 billion of limited recourse debt, as well as $1.6 billion of -- in unused capacity under our $2.6 billion committed revolving credit facility. The net recourse debt-to-EBITDA ratio calculated according with the term of the company's credit agreement as amended was 3.9x. I remind you that our covenant and ratio calculation with our lenders has been temporarily increased to 4x and that the Q4 forecasted loss on the Mining & Metallurgy project is to be considered as a nonrecurring item up to a maximum of $310 million. I also remind you that we have taken some actions that are already having impact on strengthening our balance sheet. In February, we announced a reduction of our quarterly dividend, which allows us on an annual basis to retain approximately $131 million of cash. Last month, we also reached an agreement for the sale of a portion of our stake in Highway 407 ETR for proceeds that could reach $3.25 billion, of which $3 billion should be received in June. Should a Highway 407 ETR shareholder decide to exercise its right of first refusal, this will trigger a break fee charge of 2.5% payable to OMERS. As already disclosed, we anticipate using the net proceeds from the -- for the following purposes: first, to repay the recently amended CDPQ loan by approximately $600 million. As a reminder, the term of the remaining $400 million CDPQ loan are at 300 basis points above CDOR, which compares to 500 basis points above CDOR in the previous agreement. Secondly, to substantially reduce our leverage by repaying 2 debentures reaching maturity with amounts of $150 million and $350 million, respectively, along with significantly paying down our revolving credit facility. Thus, further securing our investment grade credit rating. Our long-term target is to have a gross recourse debt to adjusted EBITDA from E&C ratio in the range of 1.0 to 1.5x, which we believe is consistent with our objective to maintain a BBB investment grade and also in line with our industry peers. As for the remainder of the proceeds, the company will continuously evaluate which capital allocation strategy would be the most accretive to shareholder value. It is important to understand that the company does not intend to use the proceeds to make any acquisitions and it does not replace in any way our efforts to grow and improve our cash flows from operation. Now turning to my last slide, Slide 10. We are maintaining our guidance for 2019. But note that given the challenges faced in Q1, we expect a very modest recovery in our adjusted diluted EPS from E&C for Q2 2019, and a more significant ramp-up in the second half of the year, as we rebuild our Resources performance and start to see the impact of our cost reduction program. Upon the finalization of the Highway 407 transactions, we will adjust and reissue our guidance accordingly. This concludes my presentation. We can now open the line for questions. Thank you.
[Operator Instructions] And we have our first question from Yuri Lynk of Canaccord Genuity.
I was wondering if you could provide a little more detail on the significant ramp-up in EPS you're expecting in Q3 and Q4. I understand it's coming from the Resource sector, but given the results the last couple of quarters and where the backlog sits, just a little more help would be appreciated getting to the guidance?
Yes. I mean it's coming from a couple of areas. You're right, in terms of the majority coming from the Resources sector but also the effects of the $100 million that we are confident that we will take out this year as part of the overall $250 million run rate starting at the beginning of next year. And while EDPM performed well and Nuclear and Infrastructure performed okay in the first quarter, and there is clearly room in the expectation that we are going to continue to increase the margin and perform better in both of these sectors as well. So it's really performing [ 3 elements ].
All right. We are talking about -- I mean certainly it's not just a ramp-up, like, we're kind of going -- you're going to have to do on average over $1 a share in Q3 and Q4, which would be record quarter. So is there a claim that's coming back? Anything like that, that might help us get there?
There's not a specific claim there, Yuri, that's coming back. And we're always obviously working through settlement and claims but the driver is really the $100 million. So if you think of it as this is being executed the moment and to generate the $250 million annually, a lot of those actions have to take place in Q2 and early Q3 essentially. And then those will pay back -- that $100 million, a lot of it will be in that second half.
Okay. I guess 2 follow-up questions on the cost reduction program. Number one, what is the -- what's it going to cost you in cash to achieve the $250 million? And secondly, which segments are going to be downsized?
Yes. I'll answer the first part of the question and then I'll pass it on to Ian for the second part. So I mean we're still assessing all the costs that will come from that. But right now, our estimate is in the range of $125 million, which would be the charge as well as the cash impact into the year. And most of that is between Q2 and Q3. And now Ian?
Well, the cost out, I guess it's a combination of a number of things. Clearly, with new sectors from 7 to 4, which has a [ segment in ] just the sectors we've removed from management structures and functional support. We've also removed revenue out of 15 countries. So we'll be stopping kind of unprofitable business in 15 countries. So the support that was given to that. And there are global geographies. But the new Resources sector also forms quite a part of that in terms of cost out. Because we've rightsized the mining part of the Resources sector because we are no longer doing EPC projects in the mining part. And we've also rightsized the, what was the Oil & Gas part of it to the business as we see it now. So there's a number of components. And clearly, we are in the process now of making those adjustments such that we get the benefit in the second half of the year.
[Operator Instructions] And we now have our next question from Benoit Poirier from Desjardins Bank.
Could you talk about the potential to receive higher bids from the -- on the 407? And also, how superior it must be in order to trigger a transaction?
Now there's -- contractually, there's no possibility of that. I mean we have a binding agreement with OMERS, and that triggers binding agreements with our other shareholders from a [ row further ] and basically, it's -- that's it, so.
Okay. Okay. But is there still a possibility to get -- the initial bidder can come back with a higher bid? This is right?
No. Not contractually.
Okay. Okay. Perfect. And could you talk a little bit also about the booking in Saudi Arabia? And what kind of options are on the table right now given the issues in the region?
Yes. I think it's important to understand that our activities in Saudi Arabia are not all Oil & Gas although a large proportion is. And what we're actually finding is that our business and our workload and our delivery and customer satisfaction around -- and the work that we are doing in the other sectors is actually progressing reasonably well and is working well. And in the Oil & Gas sector, which is the area of most disruption, we continue to execute obviously on their backlog. We continue to potentially win some more work on existing contracts and trademark agreements. But we are having disappointing results around our bidding activities on new -- completely new work. And I think that sort of goes a little bit to the fundamentals of what Ian was talking about in terms of the Resources sector. We are in a place where there's a high degree of -- not just in Saudi Arabia, but there's a high degree of uncertainty within the Resources sector. Therefore, we are rightsizing the sector SG&A to the levels of our backlog as opposed to the levels of what we could potentially win into the future. So if you look at the cost side of a minimum of $100 million this year, about 50% of it is in the Resources sector. And that's very much around making sure that we get back to backlog revenues that if we don't win substantially more work we'll likely be down. And -- but the profitability that comes from that will be back to the profitability that we would expect from that sector, which is in the 5%, 6%, 7% area.
Okay. And could you talk maybe about the contribution on revenues and maybe backlog, the associated with the 15 countries you intend to diminish your exposure with?
Yes. The revenues that were coming from those countries was about $85 million. So I don't have the backlog on the top of my head but -- and then the overall profitability of that was money losing.
Yes. I mean the backlog wouldn't be far away from the $85 million because it's [ also recognized ] [indiscernible] hard work. It was absolutely all unprofitable.
Okay. And with respect to the IFRS 16, could you talk about the impact on the adjusted EPS for [ quarter ] and see if there was any impact and maybe about the free cash flow expectation in Q2 and maybe for the full year given the current challenges?
So IFRS 16 on EPS. The impact is negligible. Now we've disclosed in the press release, the impact it has on EBIT and EBITDA and so you can see that. So on EBIT, it's like $5 million or $6 million a quarter. And so you can see that there. From a cash flow perspective, I mean we're still aiming for a positive operating cash flow for the year. There was obviously a little bit of drag from the restructuring spend that we talked about and in some areas within the sectors but otherwise we're still aiming for a positive contribution. The Q2 will be negative, just as the outflows on the mining project continues and that we ramp-up on our cash flow generation elsewhere.
And we will now take the next question from Derek Spronck of RBC.
Just wondering when I look at accounts receivable and contract assets, it's around $3.5 billion down and that's up fairly substantially. Any color around that? And perhaps, a reversal of those line items?
Yes. So when we look at our cash flow performance, one of the dynamics that surfaced, I guess, towards the tail end of last year and in Q1 is around our large infrastructure projects which either through delays on the execution of it or reaching the milestones or as we're working through with the client on settlements is basically causing a cash drag. So I'm talking about projects like Champlain, Ottawa LRT, for instance that have been causing pressure on that. So that's where you will see some of the WIP increase essentially or contract in progress.
And so expectation is for that -- for those levels to start coming down over the next...
Yes, absolutely. Absolutely. As we reach completion, as we finalize discussion with the clients and that's also a reason that explains our cash flow profile for the year essentially with Q1 and Q2 being negative and then returning positive in the second half.
Okay, great. And just a couple on specific projects. Any updates around the ammonium plant in Oman? That looks like it should be coming to completion. The Champlain Bridge? And then finally, the Codelco, is the arbitration process still going forward?
Ian, do you want to talk about Codelco?
Sure, I can talk about Codelco. So -- I mean clearly we have demobilized from the project now and we have a team now which is focused on the arbitration process. So we don't expect that to be -- kind of come to conclusion in a very short term. We're probably talking into next year and beyond. But we are focused on recovering our losses from Codelco. No further activity actually happening there.
And I think on the Champlain Bridge, I mean there's been publicity around the fact that we're working really closely with our customer around both settlement of delays that we had in the past but also in terms of the more positive piece around getting the bridge completed and opened to traffic. And that is very much on schedule in terms of the end of -- at the end of June. And then, the other project in the Middle East I think is progressing, where we're looking at that in terms of the evaluation of it but I don't think there is anything more to add on that.
And we have our next question from Chris Murray from AltaCorp Capital.
I'm just going back to your guidance a little bit, trying to may understand this a little bit. Can you just talk a little bit about the timing? Because when I look at this 4% to 6% segment EBIT, we talk about it a little bit. But I guess what I'm trying to understand is how much of that is essentially shedding that underperforming revenue and getting rid of it? How much is really coming from being able to ramp-up some of this cost recovery in the overheads?
I think the biggest piece will be the cost reduction program.
Yes, we're delivering $100 million net I mean is the biggest part of that. But then, if you go through sector-by-sector, we expect a -- 3 of the 4 sectors to continue to perform well and increase in terms of the profitability and the margin. And then ultimately, the biggest piece of work that we are in the middle of and we are intensifying is the piece within Resources. And of which, half of the cost out is very much in the Resources piece. But there's also making sure that we included on a number of projects that we have talked about in the past in terms of reaching financial settlement on that. So it's a combination of these 3 things.
Okay. So should we be expecting that -- I mean you've booked a lot of the costs associated with some of those projects already. Is it fair to think that there's anything baked into that 4% to 6% number, that would just be revenue recognition coming back for payments?
There -- like I said earlier to some of the questions, there are always settlements and claims that are expected in our forecast, some being recognized already depending on our legal entitlement and some not so. But there's nothing big on its own or a single project on its own that's baked into Q2.
Yes, I mean I think -- I mean I'm not trying to give any sort of excuse here. But in terms of the Resources sector, I mean the Resources sector I mean as you guys know, does not operate on a quarter by quarter basis -- I mean on a calendar quarter. I mean these are long-term jobs in a mixture of things, and then a mixture of claims or even just valid change orders that we got from clients that we need to go through and we need to get a high degree of certainty in terms of being able to recognize that within revenue. And unfortunately, from a quarter-by-quarter phase, even though some of these are fairly well progressed, they don't meet the standard. Therefore they may flip into the next quarter. So we are certainly looking at the base level of trading to be in that margin that we talked about. And -- but we also have a number of existing contracts that certainly we're working really hard in order to reach financial closing settlement or in order to be able to recognize these revenues.
Okay. And just moving on -- just looking at leverage, I guess, the concern that a few of us may have is, is there anything that could go wrong with the close of the 407 stake sale? You're right out at kind of outside edge of your credit facility and credit limits. Is there any delay in either the right of first refusal or anything that could drag it past the end of Q2?
We don't see anything like that happening. So we're pretty confident about our timeline here.
All right. And the expectation is that you'll receive the cash in June and be able to bring leverage down pretty quickly after that?
Yes. Absolutely.
And we have our next question from Devin Dodge of BMO Capital Markets.
So can you help us understand the margin reduction that we saw in the Nuclear business in Q1? And this business is primarily cost flat, and just the margin performance has been consistently double-digit. So it's a bit surprising for us to see some margin compression there. Any color you have would be helpful.
Well, I think in Nuclear, I mean effectively, there was 2 things. One was a slow ramp-up in the beginning of the year in terms of the overall contribution. But there was also one piece of work, which was executed under a combined risk and reward reimbursable with a risk and reward piece where we actually took the risk with our [ J.D. Power score. ] So from that perspective, there was a one-off negative in the quarter in addition to the fact that there was a slow buildup. So we do expect that in Q2, Q3 and Q4 that, that will completely reverse.
Okay. Okay. That's helpful. And maybe just switching over to the Resources sector. But how should we be thinking about top line expectations there? Just given all the moving parts. I mean it seems like revenue has kind of stabilized at around $600 million a quarter. Is that a good way to think about it going forward?
Yes. I mean I think it is. I think what needs to get factored in there and what's become very apparent to our sales -- and Ian and the team -- is that we don't want to be in a position where we are fully reliant on future bids and future revenues. We want to rightsize the business so that we are very confident we can deliver the margin of the backlog that we currently have booked. And then additional work that we either get from call-off contracts or additional work that we win is effectively in addition to that.
Okay. Okay. And then one last one. Just switching to the EDPM segment, revenue growth, it looks like it was about double-digit. Just can you give us a sense what the organic growth was? How much was FX? So just that was a pretty strong result, just any color would be helpful.
Let us dig that up. I don't have that right on the top of my head. But just 1 second. Just hold on. Yes, we'll come back to that, if you don't mind.
We will have our next question from Maxim Sytchev of National Bank Financial.
Question on, I guess, legacy Oil & Gas. Because correct me if I am wrong, I thought 65% of what you guys did was outside of Saudi Arabia. So that part of the business, is that actually EBIT positive right now? I.e. I mean like, is it all just Saudi right now, which is negatively impacting the results, I guess, that's the question.
No. No. I don't think it's just Saudi. I mean it's a -- in terms of the business overall. I mean the business is -- the SG&A is clearly oversized for the amount of work that we've got booked and firm globally. So what we're trying to do in terms of the cost reduction exercise is make sure that we are rightsizing working on the basis that this is all we're going to have and anything from that is going to be dealt within as a project by project basis and therefore accretive to the whole thing. But no, it's not just Saudi. It's our global Oil & Gas business.
Okay. And then I guess the commitment to doing EPC work, Neil, in the Resources space, is this something that the clients kind of insist on? Or I mean what is the rationale for that?
So it's Ian. The rationale really is around our capability, where we feel that in North America and in the Middle East, where we have a strong capability of carrying out midstream, downstream medium-sized EPC projects and also in the Resources sector. And some of our EPC projects and not actually lump-sum, they're more on a rate basis, reimbursable rate basis. So the -- albeit it's still performing against rates. So there was slightly lesser risk than a traditional EPC lump-sum project. So it's really around the capability, clients and the slight modification to the [ XC ] model.
All right. Just again, like, the performance has been lumpy, right? So -- and I presume that the bulk of that is coming from those EPC-type contracts, right?
Yes, they are. And Maxim, I think it's -- when you've got big lumpy contracts like that and within our contracts generally, we've always got obligations to continue to execute and perform the work even though the client may be changing the scope and from that perspective if we can't get the changes in scope completely detailed, completely agreed or to a high degree of certainty agreed with the customer, then we clearly recognize the cost but don't recognize the revenue. And that's where within that sector historically has tended to be a bit lumpy. So I mean part of what we're doing in terms of -- when Ian was talking about the growth, responsible growth, it's also looking to -- we've got a big desire not just to reduce the lump-sum work. And -- but we're looking as well to eliminate the type of contracts that typically would make our results lumpy. Because we do understand that when we have this lumpy contracts in there, then it's difficult for analysts, investors to actually understand exactly what's going on. So we are looking to take the lumpy contracts in terms of that format out of our work base going forward.
Right. And then on -- in the Resources space, again, Neil, in terms of, do you have to win new projects to be able to kind of hit the numbers in the back half? Just trying to see how much of a risk if you're not successful in terms of getting some of these projects in the door in the back half of the year?
Are you talking about -- sorry, did you say in the Resources or generally?
In the Resources, yes. In the Resources, yes.
In Resources, I mean the big objective here, which is completely within our control is we need to get half of the cost -- half of the $100 million delivered this year in Resources. And that together with -- and the orders on hand and the call-off contracts that we've got will give us a high degree of confidence that we can deliver on that in the second half.
Okay. And the last question. Can you maybe talk about the balance between, obviously, a lot of effort on SG&A savings and the improved project oversight, and kind of a cost-benefit analysis around maybe stretching too thin and trying to do both things at the same time, maybe any commentary there, please?
Yes. I don't see them as being contradictory to each other. Although, it might sound that way. And the reason that I say that is we are moving from 7 sectors to 4. And we are putting our EPC business lines into 2 sectors. So in effect, the oversight that's necessary to look at where the risk is in the business is far more simplified than it was. And we feel that we can effectively oversee those with the new oversight group without significantly increasing the SG&A. And where the SG&A is coming out in other parts of the overhead is exactly what I said before and the simplification and the way we approach BD, the way we collaborate and taking out geographies, et cetera.
Yes, I mean, we are increasing the costs in terms of the oversight. We announced the new positions. It's new capabilities, enhancing, they're all of that. So they are all additional costs. But ultimately, we're also taking out a lot of cost in order to then reach the next $250 million. So this is not just all of our cost out, it's also about a repurposing and reapplying some of our spend to the areas that we believe will give us the best results.
And we now have a question from Michael Tupholme.
On Slide 9 of the presentation, you presented details for a long-term target leverage ratio of 1 to 1.5x gross recourse debt to adjusted EBITDA from E&C. When we think about that, are we -- should we be thinking about the E&C EBITDA being the -- including the IFRS 16 benefit? So therefore the higher EBITDA number? Or is this pre-IFRS 16 EBITDA?
This is post. This is the EBITDA we report, the EBITDA we report.
Okay. And then, you provided some information about the expected use of proceeds from the 407 sale. I'm just wondering, the term facility, is there any need or intention to repay that as well?
No, not at the moment.
Okay. So there's nothing in the 407 sale or in your bank agreements that with the 407 sale, that is triggering a need to repay that?
Well, there are different rules but given the amounts involved and all that, I think we can leave that loan outstanding.
Okay. And then, you've been asked about the Resources segment a few times. But I just wanted to revisit it a little bit. The -- in the MD&A, there was reference to net unfavorable impact from reforecast on certain major Oil & Gas and Mining & Metallurgy projects. The Oil & Gas projects that experienced those favorable reforecast -- are those new issues? Or are these extensions of something that you were experiencing in prior quarters?
I mean without going through the absolute detail of which we clearly can't do. It's typically, generally an extension of what we have had over the last few quarters. So we've got -- they probably fall into 3 buckets. I mean there's clearly performance issues where we need to acknowledge that we performed badly. And therefore, you just need to recognize that. There's the piece where it's the delay in terms of ongoing long-term discussions with customers on large contracts where we had large scope increases and we're trying to get that to a conclusion and ultimately to then recognize the revenue and then obviously get -- collect the cash. And then, there are some which we think are more in the -- a bit more of the legal claim perspective where we are pursuing that. And these are all well progressed and -- but it does tend to be within these 3 areas. So if it's not -- it's not something that is new. And this has been a phenomenon for quite a while, and generally we've had a reasonable degree of success historically in being able to resolve some of these.
Okay. That's helpful. And then I guess just as we look forward, though, thinking about your expectation for a meaningful improvement in Resources in the second half. And I understand that a part of that comes down to the implementation of the cost savings, which will benefit that segment. But as far as the risk that there's any ongoing issues from some of these -- some of the things that you just spoke about. Like how comfortable are you that by the time you get to the second half, these projects are going to be done and you're not going to be experiencing these kinds of issues?
Well, again, there's was a mix because we've got a whole range of call-off contracts. We've got some contracts that are coming to completion. And then, we've got some contracts that are pretty long term and sort of ongoing. So -- and that goes back to my point earlier, where Ian and the guy really in terms of looking at the scope of what we did in taking the backlog in the future is not just about whether it's lump-sum or reimbursable, it's also a very keen eye on would this semi-reimbursable unit rate contract, with this customer, with these terms and conditions provide us with a high degree of risk that this is going to end up in a lumpy contract. It might end up OK at the end. But we're very, very aware of the fact that these lumpy contracts don't do anything in terms of our building confidence in the marketplace. So I think we've got to look really hard before we take these on and start to remove some of these.
Okay. And then just to clarify. When you talk about a 4% to 6% segment EBIT margin for Resources in, I guess, in the outlook section of the press release. Is that your expectation for the margin you believe you can deliver on a full year 2019 basis?
Yes, that's a full year. That's correct.
And then just lastly, the -- when you announced the last set of quarterly results, the full year 2018 results, there was a mention in the filings about the formation of a special committee to protect shareholder value. I think you were asked about this in the last call. But just wondering if there's been any further developments? Can you just comment on if there is any update or what sort of things they may be doing or looking at, if any different from last quarter?
Yes. I mean that was formed. It's fully populated. We have the advisers working on various options. And it's not just about protecting, I mean, there's a high degree of focus on generating additional value in terms of what's the various options are. Again, unfortunately, in terms of being really specific, I mean, that's something that -- is confidential, really, until we clearly conclude on what the best option is going forward. But -- and I think in terms of a general update, that has very well progressed and there's been a huge amount of work going into that in the last 5 months.
Okay. And then, sorry, just one other thing, if I could. Any update on the court's proceedings as it relates to the outstanding charges? Any timing updates there?
I mean we don't know for certain whether it's going to end up with a decision. But I mean the next key date really in terms of the preliminary inquiry is the end of May, I think it's the 29. But it's the end of May. And some time has been booked there. So there could be a decision at that point in terms of what happens next and -- or a further delay. So we don't know but the key date is the 29th of May.
And we have our next question from Frederic Bastien of Raymond James.
I was wondering if you exclude Clean Power from the infrastructure segment, I was wondering how the actual division performed on a like-for-like basis, did the infrastructure see some growth?
No. Infrastructure was down year-on-year, even after you exclude Clean Power.
Can you talk about the delays?
Yes. And part of that being the delays on the major projects that I mentioned earlier impacting cash as well.
Okay. That's helpful. Can you speak to the leadership changes that you've implemented at EDPM as well as Capital? Now these are segments that have been performing relatively well. So I was just curious as to why you needed to effect these changes?
Right. In terms of Capital, I think the major change with Capital because Capital is clearly performing well. But we had a strategy where we looked at whether it's possible for Capital to effectively act as a business development arm for all of our operating sectors. And clearly, we did that for a couple of years. And we had modest success with it. And so it was sort of okay. And -- but effectively when we did the review, we felt that and it was too much time and effort actually going into that for the return. Therefore, basically we have moved back to capital effectively focusing on supporting the operations more specifically within the P3 or PPP type arena principally in Canada, the United States and possibly the U.K. And so from that perspective, we have consolidated that with principally our treasury and bank relationships and the insurance functions under Stephanie. And we've realized some significant cost savings within that, which have all been -- which have already been implemented. So from that perspective, it's basically coming away from the BD option because basically it wasn't producing enough value and just being really clear about the core. On EDPM, that was not a choice. So Nick, a fantastic leader of that business, has done a great job and was provided with an opportunity to be CEO of a completely different company in the U.K. And so we regret that Nick is leaving. However, we are very, very positive about the fact that Phil is incredibly capable and Phil sort of runs 60% of the EDPM business from a European base. So from that perspective, we are sad and regret that Nick's leaving. We wish he stayed, but it provides an opportunity for a very talented guy to continue to go.
Just for Devin, just one last thing. So for Devin, on your question on organic growth, we'll come back to you on that. The FX variance that I have is, on hand, is actually versus budget, which is not that significant. But I just want to make sure on the prior year basis, it's also consistent with that. So we'll come back to you. Apologies for that.
It appears there are no further questions at this time. Mr. Denis Jasmin, I would like to turn the conference back to you for any additional or closing remarks.
Thank you very much, for joining us today. If you have any questions, please don't hesitate to give me a call. Thank you very much, and have a good afternoon. Thank you. Bye-bye.