Aecon reports year-end 2022 results

Press Release

Toronto, Ontario – February 28, 2023: Aecon Group Inc. (TSX: ARE) (“Aecon” or the “Company”) today reported results for the fourth quarter and year-end 2022 including record full year revenue of $4.7 billion and backlog of $6.3 billion as at December 31, 2022.

“Aecon achieved record revenue in 2022 and is confident in further revenue growth over the next few years supported by growing recurring revenue programs, the current level of backlog, the volume of new awards during 2022 and into early 2023, and ongoing demand for its services,” said Jean-Louis Servranckx, President and Chief Executive Officer, Aecon Group Inc. “With a strategic focus on clean energy and other projects linked to sustainability, Aecon believes it is positioned to harness the opportunities that are expected to come with the transition to a net zero economy through decarbonization.”

HIGHLIGHTS

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

Revenue for the year ended December 31, 2022 of $4,696 million was $719 million, or 18%, higher compared to 2021.
Adjusted EBITDA(1)(2) of $219.2 million for the year ended December 31, 2022 (Adjusted EBITDA margin(3) of 4.7%) compared to Adjusted EBITDA of $238.9 million (Adjusted EBITDA margin of 6.0%) in 2021 and operating profit of $97.2 million (operating margin(4) of 2.1%) compared to operating profit of $118.8 million in 2021 (operating margin of 3.0%).
Operating profit and Adjusted EBITDA in 2021 included a net positive impact related to the Canada Emergency Wage Subsidy (“CEWS”) of $31.9 million.
Net profit of $30.4 million (diluted earnings per share of $0.47) for the year ended December 31, 2022 compared to net profit of $49.7 million (diluted earnings per share of $0.78) in 2021.
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 December 31, 2022 Management’s Discussion and Analysis (“MD&A”) which is available on the Company’s profile on SEDAR (www.sedar.com), 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, COVID-19, supply chain disruptions, and inflation related to labour and materials. In 2022, due to the factors discussed above that impacted these four fixed price legacy projects during the year, Aecon recognized an operating loss of $120.0 million related to these four projects.
Reported backlog as at December 31, 2022 of $6,296 million compared to backlog of $6,198 million as at December 31, 2021. New contract awards of $4,795 million were booked in 2022 compared to $3,721 million in 2021, a 29% year-over-year increase.
Aecon-EBC General Partnership, a consortium in which Aecon holds a 60% interest and is the lead partner, was awarded the first phase of a $245 million two-phase civil construction contract by BC Hydro for the John Hart Dam Seismic Upgrade project in British Columbia. Aecon’s share of the contract was added to its Construction segment backlog in the fourth quarter of 2022.
Oneida Energy Storage Limited Partnership (“Oneida LP”), a consortium in which Aecon Concessions will be an approximately 10% equity partner upon financial close, executed an agreement with the Independent Electricity System Operator (IESO) for the Oneida Energy Storage Project to deliver a 250 megawatt / 1,000 megawatt-hour energy storage facility in Ontario, which would currently represent the largest battery storage project in Canada. Under the agreement, Aecon was awarded a $141 million Engineering, Procurement and Construction contract by Oneida LP.
Also in the fourth quarter, Scarborough Transit Connect, a consortium in which Aecon holds a 50% interest and is the lead partner, executed an agreement with Metrolinx and Infrastructure Ontario to deliver the Scarborough Subway Extension Stations, Rail and Systems project in Ontario using a progressive design-build model. The contract begins with a collaborative development phase to finalize the scope, cost and schedule of various elements of the project over an 18-month period, with certain early works activities commencing during this phase. Assuming successful completion of the development phase, an implementation phase will commence under a target price contract. The full value of the contract will not be reflected in backlog until completion of the development phase.
Subsequent to year-end a partnership in which Aecon is a participant executed a six-year alliance agreement with Ontario Power Generation to deliver North America’s first grid-scale Small Modular Reactor through the Darlington New Nuclear Project in Ontario.

CONSOLIDATED FINANCIAL HIGHLIGHTS⁽¹⁾

		Three months ended			Year ended
$ millions (except per share amounts)		December 31				December 31
		2022		2021		2022		2021

Revenue	$	1,266.8	$	1,088.6	$	4,696.5	$	3,977.3
Gross profit		98.7		94.4		356.0		366.8
Marketing, general and administrative expense		(48.1)		(47.9)		(196.4)		(182.3)
Income from projects accounted for using the equity method		5.9		4.7		17.7		15.1
Other income		8.1		1.6		14.1		7.6
Depreciation and amortization		(23.9)		(22.0)		(94.2)		(88.4)
Operating profit		40.7		30.7		97.2		118.8
Finance income		2.0		0.2		2.9		0.6
Finance cost		(16.9)		(12.0)		(57.1)		(45.6)
Profit before income taxes		25.8		19.0		43.0		73.8
Income tax expense		(6.1)		(6.9)		(12.6)		(24.1)
Profit	$	19.7	$	12.1	$	30.4	$	49.7

Gross profit margin⁽⁴⁾		7.8%		8.7%		7.6%		9.2%
MG&A as a percent of revenue⁽⁴⁾		3.8%		4.4%		4.2%		4.6%
Adjusted EBITDA⁽²⁾		67.5		61.3		219.2		238.9
Adjusted EBITDA margin⁽³⁾		5.3%		5.6%		4.7%		6.0%
Operating margin⁽⁴⁾		3.2%		2.8%		2.1%		3.0%
Earnings per share – basic	$	0.32	$	0.20	$	0.50	$	0.82
Earnings per share – diluted	$	0.26	$	0.19	$	0.47	$	0.78


Backlog(as at end of period)					$	6,296	$	6,198

(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” and “Reconciliations and Calculations” sections of this press release.

(2) This is a non-GAAP financial measure. Refer to the “Non-GAAP and Supplementary Financial Measures” and “Reconciliations and Calculations” sections 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 year ended December 31, 2022 of $4,696 million was $719 million, or 18%, higher compared to 2021. Revenue was higher in the Construction segment ($706 million) driven by higher revenue in civil ($412 million), utilities ($111 million), nuclear ($96 million), industrial ($78 million), and urban transportation solutions ($9 million). In the Concessions segment, revenue was $7 million higher in the year ended December 31, 2022 compared to the prior year primarily due to an increase in commercial flight operations at the Bermuda International Airport. Inter-segment revenue eliminations decreased by $6 million in the year ended December 31, 2022 compared to the prior year, due to lower revenue between the Concessions and Construction segments.

Operating profit of $97.2 million for the year ended December 31, 2022 decreased by $21.6 million compared to operating profit of $118.8 million in 2021. Operating profit in 2021 included net positive impacts from amounts related to CEWS of $31.9 million, recorded as cost recovery within gross profit in the Construction segment of $38.7 million and as an increase in marketing, general and administrative expense (“MG&A”) of $6.8 million.

Within operating profit, gross profit year-over-year was lower by $10.8 million. Excluding the year-over-year impact of CEWS on gross profit of $38.7 million, the favourable gross profit variance of $27.9 million occurred largely in the Construction segment, where gross profit increased by $22.5 million. This was primarily from higher volume in civil operations, and from higher volume and gross profit margin in utilities and nuclear operations partially offset by lower gross profit margin in industrial operations and lower gross profit in urban transportation solutions. Lower gross profit in urban transportation solutions was driven by negative gross profit on two light rail transit (“LRT”) projects in the year of $117.7 million compared to a negative gross profit on these two projects of $66.8 million in 2021. These two LRT projects are included in the four fixed price legacy projects discussed in Section 5 “Recent Developments”, Section 10.2 “Contingencies” and Section 13 “Risk Factors” in the Company’s December 31, 2022 MD&A. In the Concessions segment, gross profit in 2022 increased by $5.4 million primarily due to the Bermuda International Airport where airport operations continued to recover from the impacts of the COVID-19 pandemic on travel.

MG&A increased in 2022 by $14.1 million compared to 2021. The increase in MG&A was primarily due to higher personnel, consulting, and other discretionary costs driven by higher volume, partially offset by lower project pursuit and bid costs, as well as the year-over-year impact on MG&A from CEWS of $6.8 million noted in the preceding paragraphs. MG&A as a percentage of revenue decreased from 4.6% in 2021 to 4.2% in 2022.

Reported backlog as at December 31, 2022 of $6,296 million compares to backlog of $6,198 million as at December 31, 2021. New contract awards of $4,795 million were booked in 2022 compared to $3,721 million in 2021.

REPORTING SEGMENTS

Aecon reports its financial performance on the basis of two segments: Construction and Concessions, which are described in the Company’s December 31, 2022 MD&A.

IBF4

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