AECOM's CEO Hosts 2011 Financial Analyst Presentation - Event Transcript

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AECOM (NYSE:ACM) 2011 Financial Analyst Presentation December 5, 2011 5:45 PM ET


John Dionisio - Chairman and Chief Executive Officer

Michael Burke - President

James Jaska - President, Americas and Government

Jane Chmielinski - Chief Operating Officer

Fred Werner - President, Corporate Development

Dan Tishman - Director/Vice Chairman

Steve Kadenacy - Chief Financial Officer

Michael Burke

Welcome everyone. Thank you for joining us this evening. I’d like to cover a few of the housekeeping matters first here - the standard Safe Harbor disclosures. We will be broadcasting this through a webcast this evening. We will be discussing some forward looking statements and the rest of the disclosure statement is seen on the screen here.

During the course of the evening tonight, what we’d like to start off with is a management presentation for the first hour and 20 minutes. We will then serve dinner, and during dinner we would like to engage in a wide-open discussion and question and answer session, and the panel here will be available to take any questions you might have throughout dinner.

With that, I’d like to turn it over, for the intro, to John Dionisio, our chairman and chief executive officer.

John Dionisio

Thanks Mike. First of all, good evening everyone, and thank you for coming and joining us tonight. From AECOM’s perspective, tonight we have two purposes that we’d like to achieve. The first one is to give you confidence in our FY12 guidance and to align the industry analyst consensus with our guidance, so we all can be on the same page.

The second purpose of tonight is to give you more visibility and clarity in terms of the challenges we face, as well as the opportunities we have, and then to dive into the way we’re going to navigate through some of the challenges and also to discuss how we’re going to exploit some of the opportunities.

Tonight you’re not going to hear any more from myself. We’ll be very limited hearing from Mike, but what I wanted to do for you to hear from the people and the senior leadership of AECOM who are driving our business model around the globe.

Mike is going to give you a brief overview of 2011, maybe discuss some of the headwinds we had in 2011 and how we were able to navigate through them and still achieve our target in terms of our FY11 guidance and then he’s going to give you a brief look at FY12.

He’s then going to immediately turn it over to - and as you know Mike, by the way, is president of AECOM - we’re going to turn it over to Jim Jaska, and Jim, who is the president of the Americas and our government business, which the two of them constitute about 60% of AECOM’s business - is going to describe the opportunities that we see in both those markets.

He’s going to go into talking about the funding, what we see in terms of the federal budget as we think about the cuts that maybe will occur in FY13, and he’s going to discuss the opportunities that we see in the Americas, the Americas being the United States and Canada.

We’re then going to turn it over to Jane Chmielinski, who’s AECOM’s chief operating officer, and she’s going to go through what we see in the global arena, focusing on and discussing those opportunities we see in emerging markets, and where we’re making our investments. Because as we continue to look at AECOM, we continue to look at growth as a major driver, both organic growth as well as acquisitive growth, and probably the most significant growth opportunities are in places in the emerging markets.

Then we’re going to turn it over to Fred Werner, who is president of corporate development, and Fred is going to speak about looking at the global landscape and speak about what we see: investments that are being made by multinational clients. And he’s going to take a couple of examples, one in the mining industry as well as the sports industry, and discuss what we see as opportunities.

We’ll then turn it over to Dan Tishman. Dan Tishman is the vice chairman of AECOM. He is also a member of the board of directors. Dan’s going to speak to us about commercial markets. Also, by the way, this hotel was built by Tishman and Dan owns this hotel. So don’t say anything bad about this hotel please.

And then we’re going to turn it over to Steve Kadenacy, who’s our chief financial officer, and Steve is going to discuss our capital structure and also what our thoughts are in terms of alternatives and crisis scenarios that we’re putting together to anticipate bad things happening. Euro Zone - what happens if the Euro Zone collapses? Where do we stand and how do we prevent ourselves from getting sucked into that vortex.

And then Mike will wrap it up. And hopefully we’ll provide you visibility that you probably can’t get from an earnings call or other meetings, because we’re trying to give you this insight to help you make some good informed decisions in terms of, let’s be honest, recommending AECOM to investors, and for the investors here, to give you reassurance that you’ve made the right decisions.

So before I turn it over to Mike, we have a three-minute video that we’d like to show, and then we’ll come back. Thank you.

[Video plays.]

Michael Burke

As Tim is bringing up slides here, as John said, we’d like to cover a few things. And I won’t speak for very long since I think many of you throughout the year hear from John and I on a regular basis. We’d like you to hear a little bit more from our team that’s running the organization.

And then of course we’ll have plenty of time to respond to any and all of your questions during the Q&A. But because we are webcasting this, we’d like to get through the prepared comments up until dinner, and then during dinner we can open it up to Q&A. So I would ask you to hold your questions until we get through that so we’re synchronized with the webcast.

So a few things we’d like to start off with, is the recap of 2011. I think as you know, we don’t need to spend a lot of time on that, but I would like to point out some of the trends that have us pointing in the right direction.

First of all, as you know, we grew our earnings per share by 13% in FY11. That brings us to a compound growth rate of EPS of 18% over the last three years during what many might acknowledge is a fairly difficult economic environment over that period of time. So we’re particularly happy with the progress of the organization over that three-year period of time.

But more importantly than the overall results of FY11 is the results in Q4. And we saw Q4 pointing us in the right direction, even more so. We saw organic growth come back from a fairly flat environment to a 7% year over year growth organically during Q4. We saw our EBITDA margins continue the improve and as you know, over the past several years we’ve increased our EBITDA margins by over 200 basis points.

So we continued to see organic growth in the quarter, continued to see margin improvement. We had a backlog growth of 6%, so we’re adding to the backlog, book-to-burn ratios in excess of one, all pointing us to a fairly strong finish to the year and a strong result in FY12.

Our cash flow from operations improved 128% year over year. As you know, we weren’t particularly happy that that cash flow didn’t come in until the end of the year, but it did come in by the end of the year and it was a little more backloaded than we would have preferred, but during the economic challenging times, cash flow tends to slow a little bit, but that picked up dramatically, so we’re happy with the improvements there and still see even greater room for improvement in FY12.

All of this, again, the organic growth ticking back up in the quarter, our sense is right now that we will continue that organic growth movement upward in Q1 and through FY12. Our results for October and November would support that continued organic growth. During the earnings call in November, we pointed our guidance toward a range of $2.45 to $2.65, and we laid out all the assumptions inherent in that, and all of those assumptions stand still, and we remain confident in that overall outlook that we set forth in November.

During that time, we mentioned the seasonality of our earnings. Historically, we have had about 20% of our full year earnings in the first quarter. As I mentioned on the earnings call, we expected our results this year to be lower than the historical seasonality. After that call, we saw the overall analyst consensus seemed not to have heard that message, and so we wanted to reiterate tonight that while we normally would see 20% of our earnings in the first quarter, we expect our results in Q1, for various reasons, to be well below that historical 20% figure.

Having said that, we still are very confident in the overall EPS guidance range that we set forth in November and our results in Q4 as well as our performance and indicators in October and November continue to give us that confidence.

What you’re going to hear tonight is commentary from the rest of my colleagues here at the table that hopefully will give you even further confidence that our earnings growth will continue through FY12 and beyond.

So before I turn it over to the rest of the table here, I wanted to point out a couple of things that hopefully you’ll agree give us even more confidence in the future. If you go back to 2005, you see about 35% of our business was outside of the US.

We made a very strategic decision when John became the CEO to continue to invest more heavily outside the US and focus on those higher-growth markets. Now here we sit in 2011 and that non-US revenue has grown from 35% to 59%. We continue to focus on deploying our capital through M&A deals outside of the United States, and our target for 2015 is to have 65% of revenue outside the United States.

The other focus of ours has been the private sector. What you’ve heard us talk about for quite some time is our business model and our strategy is based upon a diversification model. That diversification to us means a number of things. It means diversity across geographies. It means diversity across service lines and end markets, and diversity between the public and the private sector.

We continue to expand our private sector business. We did it several years ago when we moved into the environmental management business, and the work we do for the industrial and oil and gas sector. We did it when Tishman joined us a year and a half ago, moving into the private sector buildings market. You’re going to hear Fred talk about it much more this evening, about the mining, minerals, healthcare, and sports end markets.

And so we are now sitting at 38% of our business is in the private sector, and we continue to deploy our capital in markets outside the US and in the private sector, so that our target for 2015 is that 50% of our business would be in the private sector. So again, we still feel good about the public sector around the world.

I think it’s important to point out what type of public markets we’re in. We hear concerns about the public sector. It’s important to note that our public sector is widely diversified, diversified with some fairly strong governments around the world, like the government of China, Australia, Canada, and oil-rich governments in the Middle East.

So that diversification strategy continues to move forward. The progress that we’ve made between 2005 and 2011 gives us confidence that we’ll continue that diversification through 2015.

And so with that, I’d like to start off with Jim Jaska, who will talk about our North America business.

Jim Jaska

Thank you Mike. I think what I’d like to do here this evening is cover three basic elements. First of all, present an overview of our US government business, both Department of Defense work as well as our civilian agency, and then also talk about our North America growth strategies.

And in doing this, I’ll spend some time on the budget and provide our perspective on this topic, because I know we’ve all had the reports, heard the reports, and read the reports, and we’ll just present our view of it, but more importantly, the strategic growth initiatives as we navigate through these times.

Just stepping back and characterizing our business with the United States government. Mike used the word “diversified,” and our business with the US government is diversified also. We supply our services to over 24 different departments and agencies within the government.

And it’s diversified in our service perspective also. About 35% of our business is with DOD mission support services. 30% is with civilian agencies, providing not only our planning services, our design services, but our management services for those agencies.

And I’ll talk a little bit about our work with the intelligence community and cybersecurity, which represent about 20% of our revenue base. And lastly 15% of our revenue is with the overseas contingency support contracts. And we’ll talk about that also.

I think if you look at this fiscal year, I think we expect minimal impact. And it will follow the same type of characteristics that we saw the funding profile in 2011, where we operate on continuing resolutions for some period of time, although stepping back and looking at that market, budget, and comparing it to last year, I think it’s improved, frankly. We see over half of the departments right now are operating on approved budget. We didn’t see that last year. Certainly there’s debate on FY13, and I’ll talk a little bit about that, but in terms of FY12, I think we’ll be operating on very similar scenarios.

Now looking to FY13, government fiscal year 13, I think obviously the sequestration process and the challenge of the United States government to reduce spending over a 10-year period by $1 trillion, certainly will have a significant component being with drawing down the wartime expenditures. About $700 billion of that $1.1 trillion will be attributed to drawdown on the wartime.

And what we’ve seen historically is that the main focus of those reduction of expenditures fall to the weapons system platforms and the hardware side, and that services in these times actually sustain and in fact sometimes increase as procurements of hardware are delayed, and lifecycles and life extension of hardware is occurring.

So at the end of the day, there is going to be, pending any new legislation, certainly an impact in January. But I think we have certainly prepared and positioned for this change. And I think what we see is that we’ve been preparing for the wartime withdrawal, and that was through the investments of our cyberbusiness as well as support of the intelligence community.

And I think this is important because we’re responding our services, and mirroring our customers’ needs, to a requirement that has changed, and AECOM is in a very strong position with our global footprint and our diversified services to provide the service in these high-growth areas, cyber and information management.

The other element of our growth strategy and our US government service strategy is to look at foreign military sales. FMS sales from the United States government will be a part of the withdrawal, and I think our position in countries around the world will help us position for that FMS sales, foreign military sales, either with the United States government or the other element of our strategy is non-US governments. So again, we’re positioning for this change. We have anticipated this, and we’re in a very good position to facilitate that.

In addition, if you look at our power, energy, and our mining business, supporting needs of the United States government, I think governments are looking at innovative project financing approaches, whether it’s enhanced use leases, power purchase agreements, various energy supply contracts. I think these financing methods are really advancing the need of projects that the government is looking in all agencies throughout not only the United States but in missions supporting the United States agencies outside the United States.

Now specifically looking at the civilian agencies, as I mentioned we provide services to over 24 government agencies and departments. And I think we have broadened our support and service to these agencies, and I think through our over 150 large indefinite delivery, indefinite quantity task order contracts, we’re able to provide services that provide a whole host of services that AECOM provides in its portfolio. And I think this client management, and customer account management strategy bringing forth these large contracts and our services has really positioned us well in our civilian agency markets.

Much of our work is driven by regulatory requirements such as our environmental work, where we’re supporting both the Department of Defense as well as the Department of Energy and the environmental cleanup efforts are driven by timelines that have a regulatory and court action tied to it. So again, the spending is very directed and prioritized toward these requirements.

In addition, we have a significant focus in contingency contracts, supporting emergency services as well as for FEMA and DHS, as well as Department of State around the world. So these are very high-priority markets.

In terms of the Surface Transportation Act, our expectation is that we’re going to continue for some time under the continuing resolutions that we’ve seen over the last three years. Being in DC, I’m encouraged with some of the bipartisan effort that we’re seeing on development of the surface transportation, highway transportation bill. And I think we are seeing some momentum both in the House as well as in the Senate on passage of a bill early next year I think is the latest that people are talking about.

So that’s very important as we look at some of the projects in the United States that have a federal match component to them. There’s another element of this bill that is tied to public-private partnerships, which I think is very critical for project execution. AECOM has operated and participated in over 90% of the public-private partnerships, or P3s, in North America, on the significant major infrastructure projects. So as this new trend, and this new requirement, comes forward through the legislation, we will be in I think a very strong position to support that effort.

We do still see additional uncertainty caused by the sequestration in the civilian agencies. We are going through this market with our eyes wide open. But I think there is a way to navigate, and certainly our portfolio, our line of services, and the needs certainly help us balance that challenge.

Shifting gears now to North America, our North American infrastructure market, it’s a large market, over $1 trillion, considering both the infrastructure as well as the federal services business. And the infrastructure portion is about $100 billion annually. And I think Fred’s going to talk about the capitalization on the private side, but our growth initiatives do focus on the private sector opportunities, not only in the United States, but multinationals executing their strategy around the world. And again, our portfolio and our footprint helps us supply those services to those clients, those multinationals, as they execute their growth strategies.

We also see some significant private sector tied into oil and gas. Certainly the Canadian oil sands in Alberta as well as the Marcellus Shale in the United States, present great opportunities for our environmental business line, plus our business supporting oil and gas. So there are, I think, some strong, strong markets here in the United States and North America that we’re certainly positioning and have on our radar screen.

Another part of our strategy is to, again, target projects with dedicated funding sources, and actually it represents a significant portion of our mix today. They’re driven by user fees as well as sales tax revenues. Whether they’re water projects both out on the plant side as well as the distribution side, as well as energy, renewables and transmission and distribution, I think there is a significant opportunity that we certainly are positioned well, as these markets continue to service the needs in the United States as well as in Canada.

Lastly, we were looking at leveraging, as I mentioned, the public-private partnership approach. We’ve had some very significant wins at both the Long Beach courthouse, the Port of Miami tunnel, Florida, 595, as well as the Texas North Tarrant Expressway. And I think if you look at what we’re tracking, we have over 200 major infrastructure projects that could be seen as potential for P3s. So again, this market and this delivery requirement is a key to our growth strategy.

The last element is targeting states with locally funded projects that have the largest infrastructure spends: California, Texas, New York, Illinois, as well as in Canada and Toronto and Vancouver. And I think our footprint, our geopolitical footprint, the presence of our resources in these high-demand, high infrastructure demand areas is very critical as projects unfold.

And lastly, I think as we go through executing our strategy, not only in FY12, but also beyond, certainly this careful management of resource allocation, making sure we’re applying resources where there’s the highest return.

And with that I’ll turn it over to Jane.

Jane Chmielinski

Thank you Jim. As COO of AECOM, one of the major responsibilities of my team and myself is really to advance the strategies and execute on the operational strategies that you’ve heard tonight from John, Mike, and Jim, and you’ll hear from the rest of the team.

One of those core strategies is to expand our presence into faster-growing economies that both have the means to pay for our services as well as the pent-up demand for the services that we offer. This is due primarily to some underinvestment in those services as well as growing populations.

Today, approximately 40% of AECOM’s business comes from rapidly growing, emerging, national resource-rich geographies. The balance of our business is anchored in large, existing markets where we are well-positioned. We distinguish large commodity producing developed markets like Australia and Canada as natural resource-rich markets, as we believe the underlying fundamentals of those economies benefit from the strong, long term demand for key commodities coming from those emerging markets.

Overall, existing AECOM markets, and those which we intend to invest, totaled approximately $2 trillion of the annual infrastructure spend, and these markets are expected to grow at a robust 10% per year through 2020.

What is very interesting about this, and I think what Jim spoke about, this does not mean we are not going to be investing in our core markets and our core geographies. This is as a complement to that, and to be aggressive. Also, tonight, through the course of the presentation, I’ll be focusing on Latin America, Africa, and Asia. However, there are other emerging markets that AECOM is in, such as Saudi, Qatar, and other places in the Middle East and around the globe. But in the interest of time, that’s where we’re going to focus.

As we look at our expansion into new geographies, looking ahead, solid organic growth and targeted acquisitions should increase our exposure to emerging and natural resource-rich geographies to 50% by 2015. I’m going to spend a few minutes talking about how we leverage our balanced growth strategies of M&A and strong organic growth to build the investments and our presence in those high-growth markets.

We typically enter new markets through a strategic acquisition of a company with strong local relationships or a particular end market expertise. We look to expand our local capabilities by leveraging our technical expertise and resources from around the world. As market opportunities increase, we also invest organically to meet our demand, so when we put those two things together we are uniquely qualified, or positioned, to service our clients.

This model has been very successful for us in Asia, the Middle East, and elsewhere. We have really had a very good process that works, and we can leverage it as we go into new markets.

Let me begin with Latin America. Right now we are leveraging our blueprint in Brazil, which is one of our top target growth markets. We entered the market in 2005 with an environmental design practice gained through an acquisition. Under two terms of President Lula in Brazil, they experienced solid economic growth and political stability, which paved the way for AECOM to expand our presence in the world’s fifth-largest country.

Building upon that initial environmental management capability, in 2010 we added urban planning, water, and mining support capabilities. In 2011, we added local transportation capabilities, as we were awarded rail and airport related projects. Recently, we were awarded the master-plan contracts for the 2016 Rio Olympics, which has elevated our profile in the region, and some of you might have seen the graphics over there.

It’s important to explain why the Rio project is such a significant win, because it really called upon all the talents of AECOM. This allowed us to sell the totally integrated services that we talk about, and it allowed our local footprint to be matched with our global profile. So this win I think is really a good indication of why we have an advantage of going into these emerging geographies. And we are also pursuing additional M&As in Brazil and Latin America to further support our advancement.

At this point, I’d like to turn to Africa. AECOM has been in Africa for almost 50 years. However, our acquisition in 2011 really increased our presence there as well as gave us a better beachhead on the continent. Cost consultancy is our primary local capability. Still, we are engaged in activities across other end markets that draw upon our global capabilities, from hydro power engineering in the Congo, to enabling infrastructure and support of our multi-billion dollar mining projects.

Considering the diverse countries and scale of prospects for the continent, we are pursuing M&A opportunities that may serve as catalysts for stronger and more profitability expansion. Again, we see this as an important expansion for us, and our recent acquisitions to just enforce that have really helped us get that.

And then turning to Asia, though Asia is our most well-established emerging region, we still have lots of opportunity for investment there, from China to Southeast Asia and India. In the case of Latin America and Africa, AECOM has gained its initial entry into the region via M&A, our heritage takes us back to 40 years in Asia, and we are recognized as the number-one international design firm in the region.

Asia has consistently been our fastest-growing geography over the past three years. Considering the vast infrastructure needs in the region, and robust growth expectations going forward, we are keen to increase our platform, building upon 4500 employees in the China region alone.

I think again, as you start to look at that, we’re looking at opportunities in Malaysia, Singapore, India. We recently acquired a firm in India, Spectral, which is in green buildings, and again, this all plays into our footprint, our expansion, and using our local resources to help us build upon our M&A strategy and an integrated service offering.

At this point, I’d like to turn it over to Fred, who will speak to our end market specialization strategy.

Fred Werner

Thanks Jane. If you think back to Mike’s introductory comments, a core part of our strategy five years ago was to really diversify and grow into our private markets. Five years ago we were at 25%. Today, 38%, and with a target in 2015 to be 50% of our business coming from the private sector.

Our strategy kind of builds off of what Jane said in her discussion, which is to expand our global footprint to be in places where people are building new facilities, and those are the BRIC countries, and then to really bring together all of AECOM’s spectrum of capabilities, which really cover everything from the planning through to the construction management and operation.

So over the past five years, we have embarked on a diversification program. That’s been in the health sector, in the leisure and hospitality, oil and gas, mining, and with corporate clients. And that’s been an ongoing program for the company. Tonight I’m going to focus just on three of the key markets, give you a little bit of insight into the strategy that we have going forward into them.

So the first one is global sports. We talked with a few people in the cocktail reception tonight, but about 10 years ago, with the 2010 World Cup in South Africa, World Cup venues and sports venues began to take on much more of a significance to be infrastructure rebuilding, creating legacy for cities. And cities and governments were using that as a way to really force themselves to make investments in infrastructure.

So AECOM, we were part of the 2010 World Cup. We were a part of the London Olympics, creation of the legacy and the planning for it, and now as Jane said, with the Rio Olympics, is all really about just taking our existing service offering, which is architecture, engineering, construction management, planning and infrastructure, and then packaging that all toward a new client. And that new client is about $20 billion of capex that is being spent every year to service about four major venues going on every single year. And there are some significant ones that are coming up.

So our focus has been target these major events and then begin to sell all of AECOM’s services, starting with management and then engineering so you have multiple bites of the apple on these major service offerings. As an example of what’s coming up, to illustrate the strategy, the 2020 Summer Olympics, the three targeted cities, Azerbaijan, Turkey, and Doha. We’re in all of those cities.

The second area is mining. Jim and Mike talked about it a little bit. This is a fantastic market for AECOM. If you just look at the pictures up there on the slides, it represents five different key elements that go into any capex for a mining project. And if you see, four out of those five areas are AECOM specialties. We tend to call it “pit to port.” AECOM is not involved in the mining or the mining process. That tends to be on a capex about 10% of the capex spend is in the mine, where we’re not involved.

90% of the capex is really delivering the product to market, and that’s rail, ports, utilities, and all kinds of infrastructure. Generally these projects are $5 billion plus range, and our strategy here is, again, pretty similar. We’re in great geographies - in Australia where many of the mining companies’ corporate headquarters are. And these companies want to build in Africa. They want to build in South America. They want to build in Canada, and they want to build in Asia.

So just to give you a sample, on this slide, of the capex for the top five miners in the business. It illustrates what their capex is over the next couple of years, and we think that’s a tremendous market for us. Our growth year-on-year has been about 30% in this mining sector. We have projects now, today, underway in Africa, in Guinea, in Canada, and in all throughout the Asian region, from Rio Tinto, BHP Billiton, and Xstrata.

And then the last area, again tying into this same theme, is that our corporate clients are beginning to spend significant capex in BRIC countries, and we have targeted many of these clients - GE, Rolls Royce, some of the pharma clients - offering two things: The ability to offer a completely integrated solution, which is what, as these clients are going into Brazil, they’re going into Saudi Arabia, they’re going into China, they want the comfort of a firm that can give them a full-service solution. And we are local in those countries. So that program has been underway for a while, and is successful. We’re underway for some pharma projects in China, some car manufacturing facilities in Brazil, and some work for GE in Saudi Arabia right now.

So in summary, those are three of the typical areas. Our strategy is similar across all of these private end markets, but I think it’s beginning to pay real dividends for us. So with that I’ll turn it over to Dan.

Dan Tishman

Thanks Fred. I want to talk briefly just about the construction market, where we are in the cycle, how the new construction discipline within AECOM is poised to expand rapidly within the global growth sectors that AECOM is currently in and piggybacking onto its current worldwide infrastructure. But before I go there, I want to take a bit of a step back and sort of give you my perspective on where I think the construction cycle is.

We’ve been through a slowdown. Everybody knows it in the construction market. But as this slide demonstrates, AECOM is quite poised, through the diversity around the industry, to come out of the worldwide construction slowdown, which I believe we are out of and quickly climbing up a very large opportunity ladder now.

If you look at these numbers, and these numbers are in trillions, and this is a general sort of curve of the construction outlook worldwide. And you can see that we were climbing a fairly steep path. In 2008 we sort of took a little bit, worldwide, of a time out. 2009 we had a bit of a retrenchment, and in fact because the construction industry typically is a lagging indicator, and it’s a lagging indicator because projects, countries, municipalities, construction companies, start things. They fully fund things, and they continue to be executed while in some other areas the economy slows down.

It really isn’t until those projects come to an end that the construction industry feels the recession. So you’ll see that the dip that happened in 2009-2010 within the industry, and that’s really within spending that affects the construction industry, came clearly two years after the financial industry went into collapse and started then to climb out. But as you can see by the trends, there is a steady growth of construction anticipation worldwide, 2012, about $2 trillion worldwide, climbing roughly by a couple hundred billion dollars every year.

And the reason for that is very simple. A) There are two parts to that equation. One is that emerging markets want to build whatever it is they want to build. They want to build sports facilities. They want to build infrastructure. They want to build civil infrastructure. Because they want to keep pace with the developed world.

The developed world, on the other hand, despite financial problems, recognizes that to stay the developed world they need to upgrade their facilities. In fact, in New York, which is a microcosm of all of our markets, about 50% of the building stock in New York is older than 100 years old. And everybody looks at the wonderful new marquee projects, but the reality is there is a huge pent-up demand for construction work just because the building stock is getting old.

And that is a great opportunity for our platform, where, as has been said before, we really look at the full integrated project approach, and we can take, whether it’s renovating buildings or new projects from soup to nuts, from the early stage, planning and consulting right through construction activities.

So that being said, on a worldwide basis, the huge opportunity for AECOM with its merger with Tishman is to look worldwide, to take regions, geographies where the construction industry is mature. But looking at growth - for instance Europe. We think Europe is slow, but there’s a tremendous interest in AECOM’s long and deep experience in Northern Europe. And to expand those services to include construction.

And in fact, despite what we read in the paper today, there are a number of major buildings being planned for London. We have a project team, in fact, there today, being interviewed for what could be a very major new high-rise in London. And there are a number of of those on the drawing board. They are much more selective, and the uniqueness about us is because of who we are, and the full integrated ability to deliver projects, we were invited to the dance almost all the time. And there has been great acceptance in the geographies around the world to add the construction services, the construction management approach.

We also have growth opportunity in those expanding markets. Some of the markets that are going to be responsible for many of these trillions of dollars' worth of construction do not have a matured construction industry at all. And AECOM has been in places like Asia, Southeast Asia, where they’re just looking for a westernized approach to complete the project delivery system, where right now we have no competition. There’s nobody that’s gone there. We are able to piggyback onto the infrastructure that AECOM has in those regions.

I can tell you that my impression of the commercial construction industry for AECOM is that we are - it’s waking up and it’s waking up quite rapidly. I can tell you that many of our major corporate clients: banks, hospitality companies, developers, REITs, etc., are all taking projects out of the drawing boards.

In New York, there is as much residential construction now than has happened ever. That will follow a very predictable trend. It’s happened after every recession or slowdown in my career, where apartment buildings start to be built, and there are scores of apartment buildings being built right now in New York. Nobody two years ago thought there would ever be another apartment building built. Those will quickly morph into the building of condominiums.

And in fact, we’re having more and more clients talk to us about well, you know what, construction pricing is low, financing seems to be loosening up, and we’re thinking of converting some of our construction in residential units, apartments to condominiums, and then commercial construction and office buildings will follow. And there are a number of projects on the West Side and Downtown that are being talked about. And there are tenants out there, and the financing is coming back.

So we’re very bullish on where the construction market is coming . It is not going to cease, because all of the markets we’re in have to maintain competitiveness. And the built environment is a big part of that.

The other piece of the puzzle, which we’re very optimistic about, is in the depths of the recession a number of projects, big projects, mega-projects, went on hold. And as evidenced by the enthusiasm in getting things going again, I wanted to demonstrate that one of the marquee projects we’re currently doing now is a project called the Revel Casino - which many people may have heard about.

It was somewhat the poster child of the train wreck of the real estate industry in 2008 - which was a major casino project, a $2.4 billion project in Atlantic City, which Tishman began building. And like so many projects, we were told by our owner that that project was going to be put on hold, and in fact it had no commercial value and likely would never be finished or never occupied.

That project took a year off, maybe 18 months off. The owner went back into the marketplace, recapitalized himself, and in March of last year started it up. And in about eight months that project will open. And that scenario is being repeated. Projects never really die. Sometimes that take a little bit of a time out. And we’re seeing more and more projects that were stifled by the lack of capital, or the lack of confidence in the industry, start up again.

And when a developer is about to open the next new major casino in Atlantic City, that will then, interestingly enough, there are probably three or four projects in Atlantic City which are now being talked about because if one can happen successfully there are other gaming companies and other hospitality companies that want to piggyback on their success.

So with that, I’m going to turn the podium over to Steve Kadenacy.

Steve Kadenacy

Thanks Dan. Let me just start by saying I’m very happy to be here tonight. As many of you know, I became CFO of AECOM this past October. And I look forward to getting to know all of you in the investment community more over the next few years. For those of you who don’t know, I’ve been working with Mike and the finance team side by side for three and a half years since I joined, so much of the transition, I think, will be seamless. And I look forward to getting to know you, as I said, and becoming a valuable resource to you to get to know AECOM better.

Tonight, what I’d like to focus on, as we’ve heard a lot about the uneven economic times that we are facing, and focus on the financial priorities and how to enable this management team to execute with flexibility on its goals. I’d like to focus on a few things: the free cash flow generation, our continued margin improvement initiatives, how we’re looking at the management and maintenance of our capital structure to give us the flexibility to operate in these uncertain times, and then lastly, talk a little bit about how we’re going to remain agile given the uncertainty that we’re seeing, and how AECOM is reacting to it.

Let me start with cash flow. As Mike noted, we improved our cash flow in Q4 last year to $262 million, which was a $147 million increase over the prior fourth quarter. That is a trend for us. We are seeing positive trends on DSO and cash flow. We fully expect our cash to exceed net income for FY12, and we expect that to continue into the future beyond FY12. We’re achieving this through a sharp focus on cash and implementation of working capital initiatives and incentive programs within to organization to drive the proper behavior.

Over time, we expect to get our DSOs back to pre-recession levels of 80 days. That is a two-year goal for us, but we fully expect to achieve it. And for those of you who are doing the math, every day for us is worth about $25 million.

Next, I want to talk about margin expansion, which is so critical to our strategy. As you know, over the last three years we’ve averaged about 50 basis points improvement in our margin, our EBITDA to NSR margins, on an annual basis, and we expect to get to 12% EBITDA to NSR by 2015. Key drivers of this are diverse. The two main ones are the expansion to higher-margin services like construction management and also the further leverage of AECOM’s large global scale.

And specifically, on that global scale side, is the continued consolidation of our real estate portfolio, which we’ve been quite successful doing over the last few years, and the increased use of shares services in the business, both operationally and front-facing to our clients.

Now turning to the capital structure, we’re entering 2012 with a very flexible capital structure and plenty of liquidity. Some of you already may know that we took our term loan from $600 million to $750 million last year as well as expanded our revolving credit facility from $600 to just over $1 billion.

So we are in a position right now on the debt side, we don’t have any major maturities until 2016, and at the year-end fiscal ’11, we had in terms of available cash and liquidity, over $1.2 billion. That provides us a lot of flexibility to execute on the strategy that you’ve heard here today, and leaves us at year end fiscal ’11 we were at a 1.3 net debt to EBITDA ratio, which is below our target range that we think is optimal in today’s environment of 1.5 to 2.

Additionally, we thought it prudent recently to put interest rate hedges in place to lock in a greater percentage of our debt to fixed rate, and we’ll continue to look at that given that swap rates in the current environment are at record level lows.

So last but not least, I want to focus on our remaining agile to meet these needs of the management team, the key being that we continue to believe that our M&A acquisition strategy is fundamental to our strategy to expand into the markets that will allow us to access these emerging markets and natural resource-rich markets and our liquidity allows us to do that.

We will also continue to take a very conservative approach to the capital structure and manage our risks, particularly in the euro sector, where less than 1% of our business will come from in FY12. But we will still focus on making sure that any exposures that we do have are mitigated through hedges or other types of risk mitigation strategies. That conservative risk management structure is part of our culture, and we’ll continue it.

With that, Mike, I’ll hand it back to you.

Michael Burke

Thank you Steve. Before we move into dinner, I’d just like to wrap up what I think I heard tonight, and hopefully what you heard. A few things. I’d like to focus on some of the risks and opportunities. On the risk side, as Steve said, we always continue to be concerned about what’s happening in Europe, although it’s becoming quite a small part of our business both in FY11 and FY12. So it’s not a large concern of ours, but we do manage that risk, and we do think about it, since a wide contagion of the euro can have broad-reaching impacts, as you all know.

So that’s on the risk mitigation side. On the opportunity side, we heard a lot more about the opportunities this evening. And we heard Jim talk to us about the government sector. And one of the things you see in the government sector is there’s a lot of movement in the government budgets, and there will be a lot of movements over the coming year, as the negotiations continue and the possible sequestration and the large cuts that might take place.

And what we feel very confident about is that we have been very agile, and we will continue to be very agile with a laser-like focus on those areas of the budget that are increasing. And that’s what you heard from Jim, is there are areas of the budget, and we have been investing in those areas in the cyberspace and Homeland Security space, that we will see continued increased budgets. And I think our performance over the past few years has shown that we can be fairly agile in that space.

You heard Jane talk about our emerging markets. Right now about 40% of our overall earnings come from either emerging markets or natural resource-rich countries like Africa, Australia, Western Canada. So what you heard Jane talk about is her focus on those markets that we think will grow disproportionately from a GDP perspective and more importantly grow disproportionately from an infrastructure investment. So we will continue to focus on those areas and continue to move more of our capital to those exciting markets that have outsized growth opportunities.

You heard Fred talk about some of the multinational clients in the private sector. We see growth opportunities, especially in mining, where the commodity cycle continues to move upward. The investment and the capex budgets in that sector continue to increase dramatically, and we are following those multinational clients around the world to help them with their capital expansion plans. We are one of the few firms that have the wide spectrum of services to provide that other 90% of the capex cycle in mining that relates to infrastructure, roads, rail, etc.

You also heard Dan talk about the commercial sector that is now coming out of what was a painful downturn, is now looking to be much more optimistic as people are dusting off the plans and capital is coming back to the private sector.

So all of that gives us confidence that our earnings will continue to grow in FY12. I did mention, and I reemphasized, our guidance for FY12. I did emphasize that Q1 will be a seasonably lower portion of our total earnings, but hopefully what you heard tonight is that the overall earnings opportunities for the rest of the year will continue to accelerate due to all the items you heard mentioned by my colleagues.

So with that, we’ll take just a couple minute break here to allow the team to serve dinner, and then we’ll open it up to Q&A from there. Thank you.

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