ENGINEERING INDUSTRY REPORT YEAR ANNIVERSARY 1O Q1 2020 Q1 2020 Industry Performance & Trends Q1 2020 Key Highlights • In mid-January 2020, WSP Global Inc. (TSX:WSP) approached AECOM (NYSE:AECOM) about a potential acquisition. There are no guarantees of an imminent transaction. • Houston based McDermott International Inc. (NYSE:MDR) filed for bankruptcy on January 2, estimating liabilities between USD $1 and USD $10 billion. This includes USD $3.5 billion in liabilities taken on from its takeover of Chicago Bridge & Iron Co. in 2018. • In February, SNC-Lavalin Group (TXS:SNC) disbanded the special committee it launched in December 2018 to explore strategic options including spin-offs amidst its criminal charges scandal. • The Bank of Canada cut its overnight interest rate from 1.75 per cent to 0.25 per cent in the face of rising fears around the COVID-19 spread and the related economic impacts. Whitehorn has been tracking two engineering-focused indexes over the last five years. Our Engineering Index includes professional engineering consulting firms. Whitehorn Engineering Index Market Cap Price Price ∆ 52-week Debt/ Cash Conversion Cycle (CCC) Constituents Ticker ($ millions) ($/Share) YTD High ($) Low ($) 2019 EBITDA DSO DPO DIO CCC CAD $ as at March 27, 2020 Jacobs Engineering Group Inc. nyse:j $14,021 $105.38 -10% $146.36 $83.44 2.76 77 33 - 44 WSP Global Inc. tsx:wsp $7,993 $75.32 -15% $98.12 $59.83 3.37 107 34 - 73 Tetra Tech, Inc. nasdaq:ttek $5,324 $97.36 -13% $139.81 $82.80 2.45 131 34 - 97 SNC-Lavalin Group Inc. tsx:snc $3,451 $19.66 -34% $35.31 $15.47 6.88 130 90 4 44 Stantec Inc. tsx:stn $3,867 $34.68 -6% $42.31 $26.67 3.56 122 48 - 74 Arcadis NV enxtam:arcad $1,946 $21.96 -28% $38.42 $18.79 4.00 126 33 0 94 NV5 Global, Inc. nasdaq:nvee $627 $48.61 -28% $120.47 $38.00 6.97 126 41 - 85 RPS Group plc lse:rps $147 $0.67 -77% $3.46 $0.58 3.09 87 23 - 64 Costain Group PLC lse:cost $70 $0.65 -77% $6.38 $0.54 6.64 75 62 0 14 Average -32% 4.41 109 44 0 65 Legend: DSO – Days sale outstanding DPO – Days payable outstanding DIO – Days inventory outstanding Cash conversion cycle (CCC) = DSO – DPO + DIO Overview • The Debt / EBITDA ratio measures a company’s ability to pay off its incurred debt with earned income. • SNC-Lavalin Group’s higher Debt / EBITDA ratio is due to reduced 2019 EBITDA from lower contract awards following its political scandal. • NV5 Global’s higher Debt / EBITDA ratio is due to multiple acquisitions in 2019 funded by additional debt. • The cash conversion cycle measures the number of days a company takes on average to convert its investments into cash. • We believe that SNC-Lavalin Group is stretching its payment terms with vendors to preserve cash following a $1.9 billion write down in 2019. This is further supported by the Company’s decision to reduce its dividend by 80 per cent in 2019. Q1 2020 Engineering Industry Report 2 Sector Performance Updates & Outlooks The Engineering-Related Services Index includes companies that specialize in related services including procurement and construction management. Engineering-Related Services Index Market Cap Price Price ∆ 52-week Debt/ Cash Conversion Cycle (CCC) Constituents 2019 Ticker (in $ millions) ($/Share) YTD High ($) Low ($) DSO DPO DIO CCC CAD $ as at March 27, 2020 EBITDA AECOM nyse:acm $6,418 $40.46 -28% $73.75 $30.62 4.68 102 54 - 48 KBR, Inc. nyse:kbr $4,041 $28.47 -29% $44.92 $16.89 3.92 73 41 - 32 MasTec, Inc. nyse:mtz $3,129 $41.52 -50% $103.74 $31.68 2.05 97 36 6 67 Babcock International Group PLC lse:bab $3,213 $6.36 -41% $11.53 $5.18 4.16 63 50 18 31 Worley Limited asx:wor $2,606 $5.00 -64% $14.20 $4.00 5.85 102 77 - 25 Fluor Corporation nyse:flr $1,280 $9.13 -63% $58.98 $4.01 nm nm nm nm nm Dycom Industries, Inc. nyse:dy $1,118 $35.40 -42% $85.22 $17.23 2.97 89 15 12 86 Primoris Services Corporation nasdaq:prim $960 $19.90 -29% $33.75 $13.26 2.66 85 32 - 53 Argan, Inc. nyse:agx $778 $49.74 -3% $73.11 $42.10 0.03 51 66 - (15) Keller Group plc lse:klr $607 $8.42 -36% $15.70 $7.32 2.24 91 50 13 55 IBI Group Inc. tsx:ibg $107 $3.42 -40% $5.95 $2.79 3.77 139 42 - 97 Average -39% 3.23 89 46 5 48 Overview • The Debt / EBITDA ratio measures a company’s ability to pay off its incurred debt with earned income. • The cash conversion cycle measures the number of days a company takes on average to convert its investments into cash. • Fluor Corp. experienced an 63 per cent decline in its share price year to date. The decline is due to: • Feb 18: The SEC announced it is investigating material errors in Fluor’s accounting and financial reporting for Q2 2019. • Feb 21: Fluor’s credit rating was downgraded from BBB to BBB-. • Feb 28: Class action lawsuit filed against Fluor for misleading statements. • Due to potential financial misrepresentation, we have excluded Fluor’s financial ratios from our summary. • On Jan 21, 2020, McDermott International Inc. filed for Chapter 11 bankruptcy protection, citing increasing debt following its acquisition of Chicago Bridge & Iron Co in 2018. The company was de-listed from the NYSE and subsequently, removed from Whitehorn’s Engineering-Related Services Index. Q1 2020 Engineering Industry Report 3 Engineering Market Cap We highlight the total market cap change in our Engineering Index and the Whitehorn Engineering-Related Services Index from March 1 to March 27, 2020 below. The broad based global stock market decline experienced in March had significant impact on both indices. We believe this was a result of global construction activity slowdown and the Saudi-Russia oil price war impact on oil and gas activities worldwide. • The constituents of our Engineering Index with less than $1 billion in Whitehorn Manufacturing Index market cap experienced a higher level of decline as a percentage when compared to larger index members. 50 WHO declares COVID-19 a pandemic. • Canadian constituents experienced the following changes: 45 Company Share Price Market Cap Share Price / Change Change Market Cap -$8.7B or -18.9% ($ bil) ($ bil) Change % 40 WSP Global Inc. -$13.15 -$1.4 billion -14.9% SNC-Lavalin Group Inc. -$11.54 -$2.0 billion -37.0% 35 Stantec Inc. -$5.42 -$0.6 billion -13.5% Market Cap ($ billions) Market • SNC-Lavalin Group Inc. experienced a 37.0 per cent drop in its share 30 price. The company withdrew its 2020 financial outlook in late March Mar-01 Mar-06 Mar-11 Mar-16 Mar-21 Mar-26 due to COVID-19 impact on its worldwide operations. We believe the large decline is partly due to its higher than average debt and its material exposure to the resources sector. Whitehorn Engineering-Related Services Index $40 WHO declares COVID-19 a pandemic. $35 $30 -$10.8B or -30.8% $25 Market Cap ($ billions) Market $20 $15 Mar-01 Mar-06 Mar-11 Mar-16 Mar-21 Mar-26 • AECOM, the largest constituent in this index experienced a $3.14 billion or 32.9 per cent decline in its market cap since March 1. The stock price had been increasing prior to March following speculation of a merger with WSP Global Inc. We believe investors are concerned the merger may fall through or be postponed because of the uncertainty for both companies relating to COVID-19. • Worley experienced a 54.2 per cent decline in market cap, the largest percentage decline in the index. We believe this is due to its material exposure to the energy and natural resources industry, which have been significantly impacted by the Saudi-Russia oil price war. • 43.4 per cent of MasTec’s business in 2019 was within the oil and gas industry. Its oil and gas exposure contributed to a 36.9 per cent decline in share price as a result of the oil price war. • Dycom Industries experienced a 10.6 per cent drop in market cap, the smallest decline in the index. We believe Dycom’s share price held up better than the index average with demand increasing for its telecommunication services as more employees work from home during COVID-19. Q1 2020 Engineering Industry Report 4 COVID-19 Response We highlight measures select Canadian engineering / engineering services companies are implementing to assist their clients and to combat COVID-19. Small to mid-size engineering and professional services companies can refer to some of these best practices as part of their response plans. These may provide some ideas for your business in response to the current pandemic. WSP Global Inc. (TSX:WSP) Stantec Inc. (TSX:STN) • Its Future-Ready™ Response encompasses: • Its Pandemic Committee consists of experts ranging from OHS to • Document management. Digitally available to be shared public health. with clients securely. • Pandemic Response Plan focused on: • Field work. Additional safety guidance and social • Protecting employee health. distancing considerations. • Provide for the continuity of essential business activities. • Office sites. Enhanced safety and sanitation protocols while • Minimize disruption. promoting virtual meetings. • Core business hours maintained at offices. IBI Group Inc. (TSX:IBG) SNC-Lavalin Group Inc. (TSX:SNC) • Suspended employee business travel, conducting meetings • Activated business resilience program and a dedicated global electronically instead.