Chris Murray: Gord or Theresa, I don’t know who wants to take this one, but turning back to Hydrock and just talking a little bit about maybe the U.K. Water business and what that brings to you, a couple of questions around this. First of all, you described Hydrock as an integrated firm. And I wonder maybe get your thoughts on — does that mean there’s a construction element in there that we have to be thinking about or anything like that? And as also part of this, was Hydrock a competitor of yours around AMP8? Or does it change how you guys can attack maybe the rest of the AMP8 program as we go through the year?
Gord Johnston: Yes. Great questions, Chris. So firstly, 100% with clarity, they do no construction work. And so when we talk about there being an integrated firm, they’re really integrated, the fire safety, energy, sustainability, civil, structural transportation, environmental geotech, that’s why that — they’re integrated from their perspective. But they do little to no water work, which is why they’re so complementary to Stantec there because there’s very, very, very little overlap, but great opportunities for synergies as we can bring our water expertise to their clients. They can bring some of their expertise and MEP and fire safety and so on to our clients. So that’s why we are so excited about Hydrock, they are a great firm with incredibly strong leadership. So they’re going to be really, really additive to our operations in the U.K.
Chris Murray: Okay, great. No, that’s great. Appreciate the clarification. And the other question, just very quickly, I don’t know who wants to take this one, but I guess, Theresa, you had indicated that you were thinking of retiring this year. Any update on the transition that you can provide us would be great.
Theresa Jang: Actually, no, that’s a good question for Gord — because I do fully intend to retire this year.
Gord Johnston: Yes. So the selection process is continuing. We’ve got some incredibly strong growth in internal and external candidates. So the — we are beginning the formal interview process, and we’ll be able to announce something to you here when it’s time. But we are — the process is going along well. We’ve been extremely impressed with the quality of candidates that we’re attracting.
Chris Murray: All right. I will leave it there. Thanks, folks.
Gord Johnston: Thanks, Chris.
Operator: Thank you. Our next question or comment comes from the line of Michael Tupholme from TD Securities. Mr. Tupholme, your line is now open.
Michael Tupholme: Thank you. Good morning.
Gord Johnston: Good morning.
Michael Tupholme: Gord or Theresa, a couple of questions about project margins. So first off, it looks like the improvement that you saw in the first quarter on a year-over-year basis was really driven by a couple of specific BOUs, namely Water and Buildings, whereas the other BOUs saw flat or down project margins year-over-year. I guess as we are looking toward the rest of the year, are the project margin improvement opportunities more prolific in certain BOUs than others?
Theresa Jang: Yes, I think that’s accurate. The — we’ve always pointed to public sector work, which is, of course, is very much where transportation sits, tends to be on the lower end of the project margin range that we put out there. Water, especially — the specialty water work that we provide does tend to garner those higher margins. We were flat in Environmental Services, but as we move into the peak season, which will be later Q2 and really strong into Q3, I would expect to see that strengthen again. So I think that is just the nature of the differences you see across the businesses. But really strong performance, as you noted, in Water and in Buildings.
Michael Tupholme: Okay. That’s helpful. Thank you. And then as a follow-up, at your Investor Day late last year, you talked about looking to reduce your sub-consultant use and using that as a means of helping improve project margins. Wondering to what extent that is already happening, if that is something you would expect to happen in the near-term or if we should be thinking about that as more of a sort of medium to potentially longer term opportunity.
Theresa Jang: Yes. I mean it is absolutely a longer term initiative. I would say what we’ve done thus far is really have all of our business leaders examine the makeup of their sub-consultants. There’s — as we noted at Investor Day, there’s always going to be a requirement to sub work out, particularly for federal work in the U.S. and in Canada, where you are required to allocate a portion of your contracts to indigenous owned or minority owned businesses and so on. But we are identifying where there are opportunities to use different components of Stantec as opposed to going outside. So that analysis is really well underway. And of course, in some BOUs, it’s — there’s a greater opportunity than in others. But I think we’ve got a good handle on where we’ve the opportunities, and now we will move towards that over the next couple of years.
Michael Tupholme: Great. Thank you. I will leave it there.
Operator: Thank you. [Operator Instructions] Our next question or comment comes from the line of Maxim Sytchev from NBF. Mr. Sytchev, your line is open.
Maxim Sytchev: Hi. Good morning.
Gord Johnston: Good morning.
Maxim Sytchev: Obviously very solid performance on all the fronts, and I was wondering if you don’t mind providing an update on your design center strategy and especially how we should be thinking about this sort of like the ceiling we can contemplate over the long-term because, in some of the federal work, I presume, you’re not allowed to use some of those design centers. Just wondering if you can provide a bit more color on that process. Thank you so much.
Gord Johnston: Sure. Thanks, Max. So we have three of these integrated delivery centers currently. Our largest one is in Pune in India that we talked about before, just a little bit less than 1,000 people there now. We have one in Manila in the Philippines that joined us through the Cardno acquisition at just shy of 150 people. And then we have one in Vizag in India that came with MH, Morrison Hershfield, at about 75 people or thereabout. So combined, let’s call it, just a little bit over 1,000 people. We have plans within our 3-year target here to increase that to 2,000 people. We see the opportunity to do that. In Pune, India, we’ve already taken the real estate. We had an additional floor place available above us. So we’ve taken that floor place.
We fitted out, we’ve already moved people to it. So the resources are available to us. So we are actively hiring to move that — to move forward on that and double that roughly to 2,000 people. We’ve mentioned before that when you compare at Stantec the percentage of our overall global employee head count that’s in our integrated delivery centers versus our competitors, we are probably subscale compared to a number of our other global competitors. So we see opportunities there. Now as you say, there are some clients that don’t like the use of these integrated delivery centers, but there’s others that basically require it. So you have to manage the growth of that along with your client base and being clear and honest and disclose everything to them, your clients, as you work through it.
But we still see great opportunities for further expansion there.
Maxim Sytchev: Okay. That’s super helpful. Thank you so much. And maybe just a quick follow-up to probably Michael’s question. Theresa, when I look at Environmental Services, gross revenue versus net revenue, so gross slight retraction and 2.5% growth on a net basis. So is this where we are starting to see that sort of in-sourcing capacity bearing fruit? That’s how we should be thinking about this? Thanks.
Theresa Jang: I would say probably not, Max. I think what you saw in the first quarter, sometimes that happens where, depending on project mix, you can get that dynamic where at a gross revenue level it retracts net revenue growth organically. So I would not attribute that to the longer term effort around such.
Maxim Sytchev: Okay. Okay. Thanks for clarifying. That’s it for me.
Operator: Thank you. Our next question or comment comes from the line of Frederic Bastien from Raymond James. Mr. Bastien, your line is now open.
Frederic Bastien: Good morning.
Gord Johnston: Good morning.
Frederic Bastien: Guys, if we look at your footprint, you still very much overweight in North America, which has worked great in recent years and you’re comparatively more subscale globally. Now if we take cue from the recent deals, you’re obviously changing that. But is the intent longer term to grow that 20% that you derive — that 20% of revenue that you derive globally?
Gord Johnston: Yes. I think as we look at things, a lot of the opportunities that we have for continued growth certainly will come from outside of North America. That said, we still have — and I think we’ve mentioned before in our calls that we’ve the opportunity based on the size of the U.S. market to roughly double our footprint there or even more. So we are actively looking at opportunities there. But outside of North America, you’re absolutely right, it’s a big world out there. And so we’ve opportunities to continue to grow in the U.K., Australia. But then as we talked about before, up into the Nordics. And certainly, while we’ve got an initial start in Germany with ZETCON, great opportunities for further expansion there.
The German market is extremely fragmented with the largest firm there only taking about 1% of the overall revenue. So great opportunities for continued growth into that market. So I think we are looking at all markets, Frederic. And then from a disciplined perspective, and wherever we can find the best place to deploy capital, we get good returns, we will continue to grow there.
Frederic Bastien: Great. You beat me to my second question. You answered it, by discipline. So I’m all set. Thank you very much.
Gord Johnston: Great. Thank you.
Operator: Thank you. Our next question or comment comes from the line of Ian Gillies from Stifel. Mr. Gillies, your line is now open.
Ian Gillies: Good morning, everyone.
Gord Johnston: Good morning.
Ian Gillies: It feels like a lot of the growth are — it seems that a lot of the growth are going to be coming from advanced manufacturing, power, data center, et cetera. Can you talk a little bit about how easy or how challenging it’s going to be to repurpose some of your employees from other areas into that area?
Gord Johnston: Yes, you know what, while we certainly do see growth in those areas that — where that you’re describing, there’s also considerable growth in the general core areas that we have, Water, obviously. We see Transportation continuing to grow. So as we look at data centers, there are some — absolutely some specialty disciplines required there. But we’ve those through the ESB acquisition, through the MH acquisition and others. Hydrock also brings considerable amount of specialty building services as does do some of our Australian operations. So we actually feel really good about the overall mix of our disciplines, of our employee head count in there. So we — where possible, we absolutely do cross-train and move people around, but we actually see growth really broad brush across the organization, Ian. So that will — cross-training and moving folks around isn’t a huge part of what we are looking to do over the next little bit.
Ian Gillies: Okay. That’s helpful. And then, obviously, you’ve added a footprint in Germany. Is there anywhere else in Europe at this juncture that you find yourself particularly interested in where you would like to add scale or perhaps add another leg under the stool?
