Morningstar DBRS Confirms Ratings on WSP Global Inc.

DBRS Limited (Morningstar DBRS) confirmed WSP Global Inc’s (WSP or the Company) Issuer and Senior Unsecured Notes Ratings both at BBB (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The rating confirmations reflect WSP’s leadership position as a top international design firm with ability to serve its global client base. The ratings also reflect its broad sector coverage and its proven track record of strong operating performance and profitable growth. The current ratings also incorporate the integration and financial risks associated with WSP's ongoing acquisition strategy. We anticipate WSP will continue to prioritize acquisitions that enhance its global diversification and sector mix while maintaining financial discipline.

CREDIT RATING DRIVERS
A positive rating action may occur if the Company demonstrates long-term commitment to a financial risk profile that is even stronger than that of the currently guided range and/or displays a material improvement in its business risk profile. Conversely, a negative rating action may occur if the Company were to substantially exceed our expectation in terms of acquisition activity, leading to a prolonged period of leverage beyond its stated target range and/or deteriorating operating results.

EARNINGS OUTLOOK
Looking ahead, we expect WSP will remain relatively resilient to any current macroeconomic headwinds because of its geographic and sector diversification as well as its large exposure to the public sector (making up roughly 51% of revenue) and expertise in delivering transport, infrastructure and sustainability-linked projects, spending on all of which is expected to remain strong in WSP’s core regions. Morningstar DBRS expects the Company will continue growing through a combination of organic and inorganic growth, and may reach $12 billion in net revenues by F2024. Margin improvement is forecast to continue, supported by the Company’s efforts toward internal efficiency as well as its ability to pass on inflationary cost increases because of the nature of its contracts.

FINANCIAL OUTLOOK
We expect WSP’s financial profile to remain supportive of the ratings over the near to medium term. WSP's integration of John Wood's E&I business (E&I) is progressing well, with 12-month synergies surpassing expectations, demonstrating WSP’s strong capabilities of successfully integrating large businesses and its ability to retain key employees post transaction.
Although gross debt (including lease liabilities) is projected to be moderately higher year-over-year in 2023, we anticipate F2023 leverage to improve to approximately 2.3 times (x), from 2.75x in F2022, as a result of the contributions from acquisitions and strong organic EBITDA growth across all the reportable segments.

CREDIT RATING RATIONALE
WSP’s ratings reflect the Company’s world-class reputation and global operating footprint, which enable it to undertake large-scale and highly complex projects. The Company has a track record of resilient and steady returns driven by a prudently managed growth strategy and solid public and private client relationships. The ratings also acknowledge integration and financial risks associated with large, global acquisitions, the need to manage reputational, geopolitical, and macroeconomic risks and the potential impact of litigation and/or material penalties.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) https://dbrs.morningstar.com/research/416784/dbrs-morningstar-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of BRA Factors
In the analysis of WSP, the relative weighting of the BRA factors was approximately equal.

B) Weighting of FRA Factors
In the analysis of WSP, the relative weighting of the FRA factors was approximately equal.

C) Weighting of the BRA and the FRA
In the analysis of WSP, the BRA carries greater weight than the FRA.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Services Industry (February 14, 2023), https://dbrs.morningstar.com/research/409773/.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

Lead Analyst: Margaret Rabba, Vice President, Diversified Industries
Rating Committee Chair: Scott Rattee, Senior Vice President, Diversified Industries

Initial Rating Date: April 8, 2021

Information regarding Morningstar DBRS ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at [email protected].

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