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Aecon reports second quarter 2023 results

Press Release

Toronto, Ontario – July 26, 2023 : Aecon Group Inc. (TSX: ARE) (“Aecon” or the “Company”) today reported results for the second quarter of 2023 with an 8% year-to-date increase in revenue and backlog of $6.9 billion at June 30, 2023.

“With significant new contract awards in the second quarter, backlog of $6.9 billion and recurring revenue programs continuing to see robust demand, Aecon is well-positioned to achieve further revenue growth over the next few years,” said Jean-Louis Servranckx, President and Chief Executive Officer, Aecon Group Inc. “We are focused on closing out four challenging legacy projects while achieving solid execution on our other projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement and a strategic focus on project and concession opportunities delivered under more collaborative models and linked to decarbonization, sustainability and energy transition.”

HIGHLIGHTS

All quarterly financial information contained in this news release is unaudited.

  • Revenue for the three months ended June 30, 2023 of $1,167 million was $44 million, or 4%, higher compared to the same period in 2022.
  • Adjusted EBITDA(1)(2) of $16.7 million for the three months ended June 30, 2023 (Adjusted EBITDA margin(3) of 1.4%) compared to Adjusted EBITDA of $38.5 million (Adjusted EBITDA margin of 3.4%) in the same period in 2022 and operating profit of $55.6 million compared to operating profit of $5.1 million in the same period in 2022.
  • Net profit of $28.2 million (diluted earnings per share of $0.38) for the three months ended June 30, 2023 compared to a net loss of $6.4 million (diluted loss per share of $0.10) during the same period in 2022.
  • Four large fixed price legacy projects being performed by joint ventures in which Aecon is a participant (see Section 5 “Recent Developments”, Section 10.2 “Contingencies” and Section 13 “Risk Factors” of the Company’s June 30, 2023 Management’s Discussion and Analysis (“MD&A”), are being negatively impacted due to additional costs for which the joint ventures assert that the owners are contractually responsible, including for, among other things, unforeseeable site conditions, third party delays, impacts of COVID-19, supply chain disruptions, and inflation related to labour and materials. Aecon recognized an operating loss of $81.3 million in the second quarter of 2023 (operating loss of $28.2 million in the same period of 2022) from these four legacy projects. At June 30, 2023, the remaining backlog to be worked off on these projects was $699 million.
  • Reported backlog at June 30, 2023 of $6,851 million compared to backlog of $6,605 million at June 30, 2022. New contract awards of $2,016 million were booked in the second quarter of 2023 compared to $1,305 million during the same period in 2022.
  • On May 1, 2023, Aecon announced the closing of the previously disclosed definitive purchase agreement with Green Infrastructure Partners Inc. (“GIP”) under which Aecon sold its Aecon Transportation East (“ATE”) roadbuilding, aggregates and materials businesses in Ontario for $235 million. Net cash proceeds received on closing were $155.3 million, net of debt and other estimated closing adjustments.
  • Aecon announced that it was selected by Alberta Transportation and Economic Corridors to deliver the Deerfoot Trail Improvements project in Calgary, Alberta, under two contracts with an aggregate value of $615 million. Construction commenced in the second quarter of 2023 and completion is anticipated in the fourth quarter of 2027.
  • Shoreline Power Group, a joint venture in which Aecon is the lead partner, was awarded a $1.3 billion Fuel Channel and Feeder Replacement (“FCFR”) contract by Bruce Power for Units 4, 5, 7 and 8 at the Bruce Nuclear Generating Station in Tiverton, Ontario. Aecon’s share of the contract is $1 billion. Planning work commenced in the second quarter of 2023, with construction expected to begin in the first quarter of 2025 and completion anticipated in 2032. The joint venture is now contracted to execute FCFR work on all six of Bruce Power’s nuclear reactors.
  • During the second quarter Oneida Energy Storage Limited Partnership (“Oneida LP”), a consortium in which Aecon Concessions is an 8.35% equity partner, reached financial close on the Oneida Energy Storage Project in Ontario. Aecon is also executing the Engineering, Procurement and Construction scope, which commenced in the second quarter of 2023 and is expected to reach completion in 2025.

CONSOLIDATED FINANCIAL HIGHLIGHTS(1)

      Three months ended   Six months ended  
$ millions (except per share amounts) June 30 June 30
2023 2022 2023 2022
Revenue $ 1,166.9 $ 1,123.2 $ 2,274.1 $ 2,109.2
Gross profit 45.1 77.5 112.0 138.6
Marketing, general and administrative expense (43.1) (52.7) (97.3) (105.8)
Income from projects accounted for using the equity method 4.8 3.7 8.0 6.8
Other income 70.1 0.1 82.7 2.3
Depreciation and amortization (21.2) (23.6) (44.2) (46.5)
Operating profit (loss) 55.6 5.1 61.2 (4.6)
Finance income 1.8 0.2 3.2 0.3
Finance cost (16.1) (13.2) (33.1) (25.0)
Profit (loss) before income taxes 41.3 (8.0) 31.4 (29.3)
Income tax (expense) recovery (13.1) 1.6 (12.6) 5.5
Profit (loss) $ 28.2 $ (6.4) $ 18.8 $ (23.8)
Gross profit margin(4) 3.9% 6.9% 4.9% 6.6%
MG&A as a percent of revenue(4) 3.7% 4.7% 4.3% 5.0%
Adjusted EBITDA(2) $ 16.7  $ 38.5  $ 41.3  $ 59.1
Adjusted EBITDA margin(3) 1.4% 3.4% 1.8% 2.8%
Operating margin(4) 4.8% 0.5% 2.7% (0.2)%
Earnings (loss) per share – basic $ 0.46 $ (0.10) $ 0.30 $ (0.39)
Earnings (loss) per share – diluted $ 0.38 $ (0.10) $ 0.28 $ (0.39)
Backlog (at end of period)(2) $ 6,851 $ 6,605

(1)  This press release presents certain non-GAAP and supplementary financial measures, as well as non-GAAP ratios to assist readers in understanding the Company’s performance (GAAP refers to Canadian Generally Accepted Accounting Principles). Further details on these measures and ratios are included in the “Non-GAAP and Supplementary Financial Measures” section of this press release.

(2)  This is a non-GAAP financial measure. Refer to the “Non-GAAP and Supplementary Financial Measures” section of this press release for more information on each non-GAAP financial measure.

(3)  This is a non-GAAP ratio. Refer to the “Non-GAAP and Supplementary Financial Measures” section of this press release for more information on each non-GAAP ratio.

(4)  This is a supplementary financial measure. Refer to the “Non-GAAP and Supplementary Financial Measures” section of this press release for more information on each supplementary financial measure.

Revenue for the three months ended June 30, 2023 of $1,167 million was $44 million, or 4%, higher compared to the second quarter of 2022. In the Construction segment, higher revenue of $35 million was driven by increases in civil ($42 million), industrial ($23 million), and utilities ($11 million), partially offset by lower revenue in nuclear operations ($31 million) and urban transportation solutions ($10 million). In the Concessions segment, higher revenue of $8 million for the three months ended June 30, 2023 was primarily due to the increase in commercial flight operations at the Bermuda International Airport.

Operating profit of $55.6 million for the three months ended June 30, 2023 improved by $50.5 million compared to an operating profit of $5.1 million in the same period in 2022. The improvement in quarter-over-quarter operating profit was largely due to an increase in other income of $70.0 million compared to the same period in 2022. This increase was related to a gain on sale of ATE ($38.0 million reported in Corporate within Other Costs and Eliminations), higher gains on sale of property, buildings, and equipment ($31.3 million of which $13.5 million was included in the Construction segment and $17.8 million in Corporate), and from higher foreign exchange gains ($0.7 million).

The above gains in operating profit were partially offset by lower gross profit in the second quarter of 2023 of $32.4 million. In the Construction segment, gross profit decreased by $38.4 million as a result of negative gross profit related to four fixed price legacy projects in the quarter of $81.3 million, arising from two of the four projects, one of which was in the civil sector and one in urban transportation solutions, compared to negative gross profit on the fixed price legacy projects of $28.2 million in the second quarter of 2022. These four fixed price legacy projects are discussed in Section 5 “Recent Developments” and Section 10.2 “Contingencies” in the June 30, 2023 MD&A, and Section 13 “Risk Factors” in the 2022 Annual MD&A. Other than the impact of these fixed price legacy projects in the quarter, higher gross profit in the balance of the Construction segment was largely due to improved results in urban transportation solutions. In the Concessions segment, gross profit increased by $5.8 million, primarily from an improvement in results from airport operations at the Bermuda International Airport.

Marketing, general and administrative expense (“MG&A”) for the three months ended June 30, 2023 decreased by $9.6 million compared to the same period in 2022 primarily due to lower personnel, project pursuit, and bid costs. MG&A as a percentage of revenue for the second quarter decreased from 4.7% in 2022 to 3.7% in 2023.

Reported backlog at June 30, 2023 of $6,851 million compares to backlog of $6,605 million at June 30, 2022. New contract awards of $2,016 million were booked in the second quarter of 2023 compared to $1,305 million in the same period in 2022.

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