AECOM Sheds Light on Emerging Markets and How it Spends Money

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Researched by Industrial Info Resources (Sugar Land, Texas)--On December 4, 2012, AECOM Technology Corporation (NYSE:ACM) (Los Angeles, California) held an analyst meeting where Chief Executive Officer John Dionisio, as well as other executives, discussed organic growth, balanced capital allocation and disciplined financial management. AECOM is a global provider of technical and management support services to various types of markets, including power and mining, transportation and environmental. Throughout the presentation, the executives discussed emerging markets worldwide.

Dionisio informed audience participants that AECOM is a "global enterprise," and that 50% of the company's work is being completed outside the U.S. Before the CEO discussed emerging markets and how the company spends money, he discussed the company's goals and objectives in detail. AECOM has six goals that fall under three categories: market and geographic expansion, shareholder value, and increased margins and profitability.

Dionisio wants to see AECOM increase shareholder value through balanced capital allocation and financial discipline. He also explained that it is the company's goal to increase its margin, to advance organic growth and to increase revenue and profit in emerging markets. In addition to those goals, AECOM strives to increase margin in its different fields, such as projects in construction management and projects in the oil and gas industry. The company also wants to increase work in other private sectors and increase "penetration on top private and multinational clients," he said.

Global Markets

Dionisio talked about which factors drive demand for AECOM. He said that AECOM's "business is predicated on local economies" where money is being spent. Urbanization is a huge driver, and more than 50% of the population is in urban areas, he explained.

"As we look forward, by 2050, 70% of the population," which is about 3 billion people, will be residing in urban areas. And this all ties to emerging markets. According to Dionisio, emerging markets will represent 54% of the world's gross domestic product (GDP). This scenario will create an expanding middle class that will drive demand for transportation facilities and water, he said. The combination of emerging markets and urbanization will drive a "continuous demand for the things that AECOM does, and you can categorize it in terms of infrastructure, social and civil infrastructure, resources and industry, the oil and gas markets, the power market as well as the facility side, healthcare and sports," Dionisio said.

Mature markets are still one of the drivers of demand. When it comes to mature markets, such as New York City, repairs need to be made. According to Dionisio, trillions of dollars needs to go toward infrastructure in places such as Hong Kong and Canada.

Dionisio discussed which parts of the globe have been showing growth and which have not been showing too much activity. When it comes to emerging markets, Dionisio said that Africa leads the pack. AECOM has been looking at Africa to do more projects. The company also has expanded infrastructure in India and China. He said that Honk Kong, China and South East Asia are also strong markets. Although there is growth in India, it's not as strong as Dionisio had projected it would be.

In Latin America, AECOM has not been investing as much, but Dionisio hopes that the company will have some significant expansions there over the next three years.

When Dionisio talked about the European market, he said that AECOM was not ready to open a champagne bottle just yet, but that there was some "glimmers of growth."

"We could take off our flak jackets because things are improving," he explained. He said that Eastern Europe is making a comeback and that there have been more opportunities in Russia. However, in Western Europe, France, Spain, Greece and Italy, AECOM is not seeing many new opportunities.

In the Middle East, on the other hand, there is a solid market. The United Arab Emirates specifically has been spending billions on social and civil infrastructure. "I mean it's just amazing the amount of work that's developing," he said.

Dionisio spoke a little about Australia and Asia Pacific as well. He explained that there has been a slowdown in these areas, which historically experienced 20% growth each year, but now that number is at 10%. But the region is still growing, he said.

Industrial Info has been tracking 52 projects that AECOM is involved in that are worth approximately $35.8 billion. These projects are in various stages, such as planning, engineering or construction. Industrial Info has specifically been tracking AECOM's involvement in North America, Oceania and Europe. A majority of the projects in Industrial Info's database are located in the U.S. and Canada, and they have a total investment value of $25.6 billion.

Spending Money

Mike Burke, AECOM's president, discussed how the company spends money. Over the next five years, AECOM expects to generate at least $1 billion of cash flow, and Burke referred to this amount as a "conservative estimate." He said that the company's internal goals are actually much higher than that. He stated that AECOM will continue to pursue organic investments, and the company maintains a strong balance sheet.

"As we then think about investing either organically or through acquisitions, we start with some of the key fundamental drivers of our strategic plans and key fundamental drivers of our business," he said. The outlook for emerging markets for GDP growth and infrastructure growth will outpace the growth of mature markets, Burke explained. Although AECOM will still invest in mature markets to some degree, it will invest in emerging markets more.

Before taking questions, Dionisio emphasized that AECOM has "strong fundamentals" that drive the company's markets. AECOM also has a balanced allocation strategy and is investing in organic growth opportunities and investments in share repurchases. In 2012, the company is expecting to return more than 90% of free cash flow to its shareholders. In sum, AECOM strives to grow business profitability, increase returns on investments and maximize values for shareholders.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.