TORONTO, Oct. 25,
2023 /CNW/ - Aecon Group Inc. (TSX: ARE) ("Aecon" or
the "Company") today reported results for the third quarter of
2023.
"With backlog of $6.2 billion and
recurring revenue programs continuing to see robust demand, we
believe we are 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 continue to pursue and reach settlements with
our respective clients as we make progress to close out four
challenging legacy projects that are undermining positive revenue
and profitability trends in the balance of Aecon's business. We
remain focused on projects and opportunities procured and delivered
under more collaborative models that support long-term margin
improvement and predictability and that are linked to
decarbonization, sustainability, and the energy transition."
HIGHLIGHTS
All quarterly and YTD financial
information contained in this news release is unaudited.
- Revenue for the three months ended September 30, 2023 of $1,240 million was $81
million, or 6%, lower compared to the same period in 2022,
primarily due to the impact of the sale of Aecon Transportation
East ("ATE") in the second quarter of 2023. ATE contributed revenue
of $126 million for the three-months
ended September 30, 2022. Adjusting
for the sale of ATE, revenue increased on a like-for-like basis by
$46 million, or 4%, in the
quarter.
- Adjusted EBITDA(1)(2) of
$32.0 million for the three months
ended September 30, 2023 (Adjusted
EBITDA margin(3) of 2.6%) compared to Adjusted
EBITDA of $92.6 million (Adjusted
EBITDA margin of 7.0%) in the same period in 2022 and operating
profit of $140.1 million compared to
operating profit of $61.0 million in
the same period in 2022.
- Net profit of $133.4 million
(diluted earnings per share of $1.63)
for the three months ended September 30,
2023 compared to a net profit of $34.5 million (diluted earnings per share of
$0.45) 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 September 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 $91.1
million in the third quarter of 2023 (operating loss of
$30.1 million in the same period of
2022) from these four legacy projects. At September 30, 2023, the remaining backlog to be
worked off on these projects was $528
million.
- Reported backlog at September 30,
2023 of $6,202 million
compared to backlog of $6,275 million
at September 30, 2022. New contract
awards of $591 million were booked in
the third quarter of 2023 compared to $991
million during the same period in 2022.
- On September 20, 2023, Aecon
announced the closing of the previously disclosed agreement with
Connor, Clark & Lunn Infrastructure ("CC&L Infrastructure")
to sell a 49.9% interest in the L.F. Wade International Airport
(Bermuda International Airport)
concessionaire, Bermuda Skyport Corporation Limited ("Skyport").
The final sale price was $162.3
million (US$120.0 million) in
cash following certain closing adjustments. Aecon recorded a gain
on sale of $139.0 million, including
a fair value remeasurement gain of $80.4
million related to Aecon's 50.1% retained interest in the
third quarter.
- Aecon announced that it has achieved Silver Certification in
Progressive Aboriginal Relations from the Canadian Council for
Aboriginal Business. Aecon was one of the four companies recognized
at the silver level. As a silver-certified company, Aecon has
demonstrated its Indigenous business plan through its established
Indigenous business partnerships, active contributions of
Indigenous Peoples across its workplace, and investments in
communities and people to support a sustainable future.
- Subsequent to quarter end, on October
23, 2023 Aecon announced a strategic investment by Oaktree
Capital Management, L.P. ("Oaktree") in an Aecon subsidiary, Aecon
Utilities Group Inc. ("Aecon Utilities"), creating an enhanced
growth vehicle focused on providing utility infrastructure services
across North America. The
investment subsequently closed on October
24, 2023. Oaktree acquired a 27.5% ownership interest by way
of a net $150 million convertible
preferred equity investment (the "Investment") in Aecon Utilities
and based on an enterprise value for Aecon Utilities of
$750 million. The Investment creates
a vehicle to address attractive industry growth opportunities
across utility end-markets in Canada and the U.S., provides financial
flexibility to accelerate Aecon Utilities' acquisition strategy,
introduces a recognized value-added partner in Oaktree with a
successful track record in utilities infrastructure investing, and
strengthens Aecon's consolidated balance sheet, providing Aecon the
financial flexibility to fund strategic growth initiatives.
CONSOLIDATED FINANCIAL
HIGHLIGHTS(1)
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
$ millions (except
per share amounts)
|
|
September
30
|
|
September
30
|
|
|
|
|
2023
|
|
|
2022
|
|
2023
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,239.6
|
|
$
|
1,320.5
|
$
|
3,513.7
|
|
$
|
3,429.7
|
|
|
Gross profit
|
|
45.7
|
|
|
118.6
|
|
157.7
|
|
|
257.3
|
|
|
Marketing, general and
administrative expense
|
|
(28.7)
|
|
|
(42.5)
|
|
(126.0)
|
|
|
(148.3)
|
|
|
Income from projects
accounted for using the equity method
|
|
5.2
|
|
|
5.0
|
|
13.3
|
|
|
11.8
|
|
|
Other income
|
|
138.2
|
|
|
3.6
|
|
220.9
|
|
|
6.0
|
|
|
Depreciation and
amortization
|
|
(20.3)
|
|
|
(23.8)
|
|
(64.4)
|
|
|
(70.2)
|
|
|
Operating
profit
|
|
140.1
|
|
|
61.0
|
|
201.3
|
|
|
56.5
|
|
|
Finance
income
|
|
2.3
|
|
|
0.6
|
|
5.5
|
|
|
0.9
|
|
|
Finance cost
|
|
(16.6)
|
|
|
(15.1)
|
|
(49.6)
|
|
|
(40.1)
|
|
|
Profit before income
taxes
|
|
125.8
|
|
|
46.5
|
|
157.2
|
|
|
17.2
|
|
|
Income tax (expense)
recovery
|
|
7.6
|
|
|
(12.0)
|
|
(5.0)
|
|
|
(6.5)
|
|
|
Profit
|
$
|
133.4
|
|
$
|
34.5
|
$
|
152.2
|
|
$
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
margin(4)
|
|
3.7 %
|
|
|
9.0 %
|
|
4.5 %
|
|
|
7.5 %
|
|
|
MG&A as a
percent of revenue(4)
|
|
2.3 %
|
|
|
3.2 %
|
|
3.6 %
|
|
|
4.3 %
|
|
|
Adjusted
EBITDA(2)
|
$
|
32.0
|
|
$
|
92.6
|
|
73.2
|
|
$
|
151.7
|
|
|
Adjusted EBITDA
margin(3)
|
|
2.6 %
|
|
|
7.0 %
|
|
2.1 %
|
|
|
4.4 %
|
|
|
Operating
margin(4)
|
|
11.3 %
|
|
|
4.6 %
|
|
5.7 %
|
|
|
1.6 %
|
|
|
Earnings per share –
basic
|
$
|
2.16
|
|
$
|
0.57
|
$
|
2.47
|
|
$
|
0.18
|
|
|
Earnings per share –
diluted
|
$
|
1.63
|
|
$
|
0.45
|
$
|
1.94
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog (at end of
period)
|
|
|
|
|
|
$
|
6,202
|
|
$
|
6,275
|
|
|
|
|
|
|
|
|
|
|
|
|
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(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 under IFRS). 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 three months ended September 30, 2023 of $1,240 million was $81
million, or 6%, lower compared to the third quarter of 2022.
In the Construction segment, lower revenue of $83 million was driven by decreases in civil
($106 million) due to the sale of ATE
during the second quarter of 2023, nuclear ($11 million), and utilities ($2 million), partially offset by higher revenue
in industrial operations ($30
million) and urban transportation solutions ($6 million). In the Concessions segment, higher
revenue of $4 million for the three
months ended September 30, 2023 was
primarily due to the increase in commercial flight operations at
the Bermuda International Airport.
Intersegment revenue eliminations increased by $2 million due to higher revenue between the
Construction and Concessions segments.
Operating profit of $140.1 million
for the three months ended September 30,
2023 increased by $79.1
million compared to an operating profit of $61.0 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 $134.6
million compared to the same period in 2022. This increase
was primarily due to a gain related to the sale of a 49.9% interest
in the Bermuda International
Airport concessionaire of $139.0
million, including a fair value remeasurement gain of
$80.4 million on Aecon's 50.1%
retained interest in the concessionaire, partially offset by a
$1.5 million reduction in the gain on
sale of ATE after certain closing adjustments, lower gains on the
sale of equipment ($1.5 million), and
a decrease in foreign exchange gains ($1.5
million).
The above increase in operating profit from an increase in other
income was partially offset by lower gross profit in the third
quarter of 2023 of $72.9 million. In
the Construction segment, gross profit decreased by $75.7 million largely as a result of negative
gross profit related to four fixed price legacy projects in the
quarter of $91.1 million, arising
from two of the four projects, one of which was in urban
transportation solutions and the other in the civil sector,
compared to negative gross profit on the fixed price legacy
projects of $30.2 million in the
third quarter of 2022. These four fixed price legacy projects are
discussed in Section 5 "Recent Developments" and Section 10.2
"Contingencies" in the September 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, lower gross profit in the balance of the
Construction segment was largely due to lower gross profit in civil
operations primarily due to the sale of ATE in the second quarter
of 2023. In the Concessions segment, gross profit increased by
$2.7 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 September 30,
2023 decreased by $13.8
million compared to the same period in 2022. Lower MG&A
in the third quarter of 2023 was primarily due to lower personnel
costs and from a decrease due to the sale of ATE in the second
quarter of 2023. MG&A as a percentage of revenue for the third
quarter decreased from 3.2% in 2022 to 2.3% in 2023.
Reported backlog at September 30,
2023 of $6,202 million
compares to backlog of $6,275 million
at September 30, 2022. New contract
awards of $591 million were booked in
the third quarter compared to $991
million in the same periods in 2022.
REPORTING SEGMENTS
Aecon reports its financial performance on the basis of two
segments: Construction and Concessions, which are described in the
Company's September 30, 2023
MD&A.
CONSTRUCTION SEGMENT
Financial Highlights
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
$
millions
|
|
September
30
|
|
|
September
30
|
|
|
|
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,215.4
|
|
$
|
1,298.8
|
|
$
|
3,445.3
|
|
$
|
3,374.5
|
|
|
Gross
profit
|
$
|
32.5
|
|
$
|
108.2
|
|
$
|
125.8
|
|
$
|
234.2
|
|
|
Adjusted
EBITDA(1)
|
$
|
16.5
|
|
$
|
82.0
|
|
$
|
34.4
|
|
$
|
135.0
|
|
|
Operating
profit
|
$
|
1.3
|
|
$
|
63.4
|
|
$
|
10.0
|
|
$
|
77.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
margin(3)
|
|
2.7 %
|
|
|
8.3 %
|
|
|
3.7 %
|
|
|
6.9 %
|
|
|
Adjusted EBITDA
margin(2)
|
|
1.4 %
|
|
|
6.3 %
|
|
|
1.0 %
|
|
|
4.0 %
|
|
|
Operating
margin(3)
|
|
0.1 %
|
|
|
4.9 %
|
|
|
0.3 %
|
|
|
2.3 %
|
|
|
Backlog (at end of
period)
|
|
|
|
|
|
|
$
|
6,100
|
|
$
|
6,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
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.
|
(2)
|
This is a non-GAAP
ratio. 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 ratio.
|
(3)
|
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 in the Construction segment for the three months ended
September 30, 2023 of $1,215 million was $83
million, or 6%, lower compared to the same period in 2022.
Revenue was lower in civil operations ($106
million) driven primarily by a lower volume of roadbuilding
construction work in eastern Canada of $127
million as a result of the sale of ATE in the second quarter
of 2023, and partially offset by an increase in major projects work
in western Canada. Revenue was
also lower in nuclear operations ($11
million) from a lower volume of refurbishment work at
nuclear generating stations located in Ontario, and in utilities operations
($2 million). Partially offsetting
these decreases was higher revenue in industrial operations
($30 million) driven primarily by
increased activity on mainline pipeline work which offset a lower
volume of field construction work primarily at chemical facilities
in eastern Canada, and in urban
transportation solutions ($6 million)
primarily from an increase in rail expansion and electrification
work in Ontario.
Operating profit in the Construction segment of $1.3 million in the three months ended
September 30, 2023 compares to an
operating profit of $63.4 million in
the same period in 2022, a decrease of $62.1
million. This decrease was primarily driven by lower gross
profit in civil operations due to negative gross profit of
$41.6 million in the third quarter of
2023 from one of the four fixed price legacy projects versus a
gross profit of $1.0 million in the
same period in 2022 from the same project; in urban transportation
solutions by a negative gross profit of $49.5 million from one of the four fixed price
legacy projects compared to a negative gross profit of $22.5 million in the same period last year from
the same project; and partially offset in industrial
operations by gross profit of $nil from one of the four fixed
price legacy projects compared to a negative gross profit of
$8.7 million in the same period last
year from the same project. The four fixed price legacy projects
are discussed in Section 5 "Recent Developments" and Section 10.2
"Contingencies" in the September 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, lower operating profit in the balance of
the Construction segment was driven by lower operating profit from
roadbuilding construction work due to the sale of ATE in the second
quarter of 2023, largely offset by higher gross profit margin in
nuclear operations and urban transportation solutions and lower
MG&A in utilities operations.
Construction backlog at September 30,
2023 was $6,100 million, which
was $80 million lower than the same
time last year. Backlog decreased period-over-period in civil
($359 million), industrial operations
($280 million), and urban
transportation solutions ($256
million), and increased in nuclear ($717 million) and utilities ($98 million). Backlog at September 30, 2023 excludes all amounts related
to ATE which was sold in the second quarter of 2023 (see Section 5
"Recent Developments" in the September 30,
2023 MD&A) at which time related backlog of $447 million was removed. New contract awards
totaled $563 million in the third
quarter of 2023 and $3,348 million
year-to-date, compared to $966
million and $3,438 million,
respectively, in the same periods last year.
CONCESSIONS SEGMENT
Financial Highlights
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
|
$
millions
|
|
September
30
|
|
|
September
30
|
|
|
|
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
26.3
|
|
$
|
21.8
|
|
$
|
70.6
|
|
$
|
55.4
|
|
|
Gross
profit
|
$
|
13.1
|
|
$
|
10.4
|
|
$
|
31.5
|
|
$
|
22.7
|
|
|
Income from projects
accounted for using the equity method
|
$
|
4.8
|
|
$
|
3.4
|
|
$
|
13.2
|
|
$
|
10.2
|
|
|
Adjusted
EBITDA(1)
|
$
|
27.4
|
|
$
|
20.7
|
|
$
|
70.1
|
|
$
|
51.7
|
|
|
Operating
profit
|
$
|
152.7
|
|
$
|
8.3
|
|
$
|
169.5
|
|
$
|
15.1
|
|
|
Backlog (at end of
period)
|
|
|
|
|
|
|
$
|
102
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
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.
|
On September 20, 2023, Aecon
announced the closing of the previously disclosed agreement with
CC&L Infrastructure to sell a 49.9% interest in Skyport.
Following this transaction, Aecon holds a 50.1% interest in
Skyport, the concessionaire responsible for the Bermuda International Airport's operations,
maintenance and commercial functions, and the entity that will
manage and coordinate the overall delivery of the Bermuda International Airport Redevelopment
Project over a 30-year concession term that commenced in 2017. On
December 9, 2020, Skyport opened the
new passenger terminal building at the L.F. Wade International
Airport. Prior to the transaction with CC&L Infrastructure,
Aecon's participation in Skyport was 100% consolidated and, as
such, was accounted for in the consolidated financial statements by
reflecting, line by line, the assets, liabilities, revenue and
expenses of Skyport. Subsequent to the closing of the Skyport
transaction during the third quarter of 2023, Aecon's 50.1%
concession participation in the Skyport joint venture is accounted
for using the equity method. See
Section 5 "Recent Developments" in the September 30, 2023 MD&A for details of the
completed sale of a 49.9% interest in Skyport. Furthermore, Aecon's
concession participation in the Eglinton Crosstown light rail
transit ("LRT"), Finch West LRT, Gordie Howe International Bridge,
Waterloo LRT, and the GO Expansion On-Corridor Works projects are
joint ventures that are also accounted for using the equity
method.
For the three months ended September 30,
2023, revenue in the Concessions segment of $26 million was $4
million higher compared to the same period in 2022 primarily
due to an increase in commercial flight operations at the
Bermuda International Airport.
Operating profit in the Concessions segment for the three months
ended September 30, 2023 improved by
$144.4 million. Higher operating
profit was primarily driven by a gain related to the sale of a
49.9% interest in Skyport of $139.0
million, including a fair value remeasurement gain of
$80.4 million on Aecon's 50.1%
retained interest in Skyport, an improvement in operating results
at the Bermuda International
Airport, and from an increase in management and development
fees.
Except for Operations & Maintenance ("O&M") activities
under contract for the next five years and that can be readily
quantified, Aecon does not include in its reported backlog expected
revenue from concession agreements. As such, while Aecon expects
future revenue from its concession assets, no concession backlog,
other than from such O&M activities for the next five years, is
reported.
OUTLOOK
Demand for Aecon's services across Canada continues to be strong. During the
first nine months of 2023, Aecon was awarded a number of projects
that were added to backlog including delivery of the Deerfoot Trail
Improvements project in Calgary,
Alberta and an Aecon joint venture was awarded the Fuel
Channel and Feeder Replacement contract for four units at the Bruce
Nuclear Generating Station in Tiverton,
Ontario. In addition, during 2022, a consortium in which
Aecon is a participant was selected to deliver the long-term GO
Expansion On-Corridor Works project in Ontario under a progressive design, build,
operate and maintain contract model which begins with a two-year
development phase leading into the main construction scope and a
25-year operations and maintenance component, while another
consortium in which Aecon is a participant was selected as the
development partner for the Scarborough Subway Extension Stations,
Rail and Systems project in Ontario to be delivered using a progressive
design-build model. None of the anticipated work from these two
significant long-term progressive design-build projects is yet
reflected in backlog. Aecon (including joint ventures in which
Aecon is a participant) is also prequalified on a number of project
bids due to be awarded during the next twelve months and has a
pipeline of opportunities to further add to backlog over time. With
backlog of $6.2 billion at
September 30, 2023 and recurring
revenue programs continuing to see robust demand, Aecon believes it
is positioned to achieve further revenue growth over the next few
years.
While volatile global and Canadian economic conditions are
impacting inflation, interest rates, and overall supply chain
efficiency, these factors have stabilized to some extent and have
largely been and will continue to be reflected in the pricing and
commercial terms of the Company's recent and prospective project
awards and bids. However, certain ongoing joint venture projects
that were bid some years ago have experienced impacts related, in
part, to those factors, that will require satisfactory resolution
of claims with the respective clients. Results have been negatively
impacted by these four legacy projects in recent periods,
undermining positive revenue and profitability trends in the
balance of Aecon's business. Until these projects are complete and
related claims have been resolved, there is a risk that this could
also occur in future periods – see Section 5 "Recent Developments"
and Section 10.2 "Contingencies" in the September 30, 2023 MD&A and Section 13 "Risk
Factors" in the 2022 Annual MD&A regarding the risk on four
large fixed price legacy projects entered into in 2018 or earlier
by joint ventures in which Aecon is a participant.
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 ATE operations. Net cash proceeds received on
closing, net of debt and cash assumed by the purchaser, were
$155.3 million. On September 20, 2023, Aecon announced the closing
of the previously disclosed agreement with CC&L Infrastructure
to sell a 49.9% interest in Skyport. The final sale price was
$162.3 million (US$120.0 million) in cash following certain
closing adjustments. Aecon plans to maintain a disciplined capital
allocation approach focused on long-term shareholder
value.
Subsequent to quarter end, on October 23,
2023 Aecon announced a strategic investment by Oaktree in
Aecon Utilities. The investment subsequently closed on October 24, 2023. Oaktree acquired a minority
ownership interest in Aecon Utilities by way of a net $150 million convertible preferred equity
investment. The Investment creates a vehicle to address attractive
industry growth opportunities across utility end-markets in
Canada and the U.S., provides
financial flexibility to accelerate Aecon Utilities' acquisition
strategy, introduces a recognized value-added partner in Oaktree
with a successful track record in utilities infrastructure
investing, and strengthens Aecon's consolidated balance sheet with
Aecon receiving proceeds of $150
million from the Investment. This provides Aecon the
financial flexibility to fund strategic growth initiatives. In
addition to Aecon Utilities' new credit facility of $400 million, Aecon has a separate committed
revolving credit facility of $450
million that replaces its prior $600
million facility.
In the Construction segment, with strong demand, growing
recurring revenue programs, and diverse backlog in hand, Aecon is
focused on achieving solid execution on its projects and
selectively adding to backlog through a disciplined bidding
approach that supports long-term margin improvement in this
segment. In addition to the selection of consortiums in which Aecon
is a participant for two large transit related projects in 2022
noted above, in early 2023, a partnership in which Aecon is a
participant announced that it had 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 Clarington, Ontario. In addition, Oneida LP, a
consortium in which Aecon Concessions is an 8.35% equity partner,
executed an agreement with the Independent Electricity System
Operator for the Oneida Energy Storage Project to deliver a 250
megawatt / 1,000 megawatt-hour energy storage facility near
Nanticoke Ontario, with Aecon
awarded a $141 million Engineering,
Procurement and Construction contract by Oneida LP. All of these
projects further demonstrate Aecon's strategic focus in the
industry with respect to projects linked to decarbonization, energy
transition, and sustainability and represent more collaborative
procurement models than have traditionally been used.
In the Concessions segment, in addition to expecting an ongoing
recovery in travel through the Bermuda International Airport through 2023,
there are a number of opportunities to add to the existing
portfolio of Canadian and international concessions in the next 12
to 24 months, including projects with private sector clients that
support a collective focus on sustainability and the transition to
a net-zero economy. The GO Expansion On-Corridor Works project and
the Oneida Energy Storage project noted above are examples of the
role Aecon's Concessions segment is playing in developing,
operating and maintaining assets related to this transition.
At September 30, 2023, Aecon had a
committed revolving credit facility of $600
million, of which $30 million
was drawn and $9 million utilized for
letters of credit. On December 31,
2023, convertible debentures with a face value of
$184 million will mature and the
Company expects to repay these debentures at maturity or before.
The Company has no other debt or working capital credit facility
maturities in 2023, except equipment loans and leases in the normal
course.
CONSOLIDATED RESULTS
The consolidated results for the three and nine months ended
September 30, 2023 and 2022 are
available at the end of this news release.
CONSOLIDATED BALANCE SHEETS
|
|
September
30
|
|
December
31
|
$
thousands
|
|
2023
|
|
2022
|
|
|
|
|
|
Cash and cash
equivalents and restricted cash
|
$
|
432,412
|
$
|
484,245
|
Other current
assets
|
|
1,957,789
|
|
1,839,009
|
Property, plant and
equipment
|
|
248,147
|
|
395,101
|
Other long-term
assets
|
|
480,277
|
|
848,662
|
Total
Assets
|
$
|
3,118,625
|
$
|
3,567,017
|
|
|
|
|
|
Current portion of
long-term debt - recourse
|
$
|
38,156
|
$
|
56,564
|
Current portion of
long-term project debt - non-recourse
|
-
|
|
3,347
|
Current portion of
convertible debentures
|
|
182,706
|
|
178,878
|
Other current
liabilities
|
|
1,590,512
|
|
1,595,674
|
Long-term debt -
recourse
|
|
103,979
|
|
173,638
|
Long-term project debt
- non-recourse
|
|
-
|
|
375,654
|
Other long-term
liabilities
|
|
125,395
|
|
229,267
|
|
|
|
|
|
Equity
|
|
1,077,877
|
|
953,995
|
Total Liabilities
and Equity
|
$
|
3,118,625
|
$
|
3,567,017
|
CONFERENCE CALL
A conference call and live webcast has been scheduled for
9 a.m. (Eastern Time) on Thursday,
October 26, 2023. To participate in the conference call, please
pre-register using this link. After registering, an email will be
sent, including dial-in details and a unique access code required
to join the live call. Please ensure you have registered at least
15 minutes prior to the conference call time.
A live webcast of the conference call will also be available at
www.aecon.com/InvestorCalendar.
An accompanying presentation of the third quarter 2023 financial
results will also be available after market close on October 25, 2023 at www.aecon.com/investing. For
those unable to attend the call, a replay will be available within
one hour following the live conference call at the same webcast
link above.
ABOUT AECON
Aecon Group Inc. (TSX: ARE) is a national Canadian construction
and infrastructure development company with global experience.
Aecon delivers integrated solutions to private and public-sector
clients through its Construction segment in the Civil, Urban
Transportation, Nuclear, Utility and Industrial sectors,
and provides project development, financing, investment and
management services through its Concessions segment. Join our
online community on Twitter, LinkedIn, Facebook, and
Instagram @AeconGroupInc.
NON-GAAP AND SUPPLEMENTARY FINANCIAL MEASURES
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 Generally
Accepted Accounting Principles under IFRS). These measures do not
have any standardized meaning and therefore are unlikely to be
comparable to similar measures presented by other issuers and
should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP.
Throughout this press release, the following terms are used,
which do not have a standardized meaning under GAAP.
Non-GAAP Financial Measures
A non-GAAP financial measure: (a) depicts the historical or
expected future financial performance, financial position or cash
flow of the Company; (b) with respect to its composition, excludes
an amount that is included in, or includes an amount that is
excluded from, the composition of the most comparable financial
measure presented in the primary consolidated financial statements;
(c) is not presented in the financial statements of the Company;
and (d) is not a ratio.
Non-GAAP financial measures presented and discussed in this
press release are as follows:
- "Adjusted EBITDA" represents operating profit (loss)
adjusted to exclude depreciation and amortization, the gain (loss)
on sale of assets and investments, and net income (loss) from
projects accounted for using the equity method, but including
"Equity Project EBITDA" from projects accounted for using the
equity method (Refer to the "Reconciliations and Calculations"
section of this press release for a quantitative reconciliation to
the most comparable financial measure).
- "Equity Project EBITDA" represents Aecon's
proportionate share of the earnings or losses from projects
accounted for using the equity method before depreciation and
amortization, finance income, finance cost and income tax expense
(recovery) (Refer to the "Reconciliations and Calculations" section
of this press release for a quantitative reconciliation to the most
comparable financial measure).
Management uses the above non-GAAP financial measures to analyze
and evaluate operating performance. Aecon also believes the above
financial measures are commonly used by the investment community
for valuation purposes, and are useful complementary measures of
profitability, and provide metrics useful in the construction
industry. The most directly comparable measures calculated in
accordance with GAAP are operating profit and profit (loss)
attributable to shareholders.
Primary Financial Statements
Primary financial statements include any of the following: the
consolidated balance sheets, the consolidated statements of income,
the consolidated statements of comprehensive income, the
consolidated statements of changes in equity, and the consolidated
statements of cash flows.
Key financial measures presented in the primary financial
statements of the Company and discussed in this press release are
as follows:
- "Gross profit" represents revenue less direct costs and
expenses. Not included in the calculation of gross profit are
marketing, general and administrative expense ("MG&A"),
depreciation and amortization, income (loss) from projects
accounted for using the equity method, other income (loss), finance
income, finance cost, income tax expense (recovery), and
non-controlling interests.
- "Operating profit (loss)" represents the profit (loss)
from operations, before finance income, finance cost, income tax
expense (recovery) and non-controlling interests.
The above measures are presented on the face of the Company's
consolidated statements of income and are not meant to be a
substitute for other subtotals or totals presented in accordance
with IFRS, but rather should be evaluated in conjunction with such
IFRS measures.
- "Backlog" (Remaining Performance Obligations) means
the total value of work that has not yet been completed that: (a)
has a high certainty of being performed as a result of the
existence of an executed contract or work order specifying job
scope, value and timing; or (b) has been awarded to Aecon, as
evidenced by an executed binding letter of intent or agreement,
describing the general job scope, value and timing of such work,
and where the finalization of a formal contract in respect of such
work is reasonably assured. Operations and maintenance ("O&M")
activities are provided under contracts that can cover a period of
up to 30 years. In order to provide information that is comparable
to the backlog of other categories of activity, Aecon limits
backlog for O&M activities to the earlier of the contract term
and the next five years.
Remaining Performance Obligations, i.e. Backlog, is presented in
the notes to the Company's annual consolidated financial statements
and is not meant to be a substitute for other amounts presented in
accordance with GAAP, but rather should be evaluated in conjunction
with such GAAP measures.
Non-GAAP Ratios
A non-GAAP ratio is a financial measure presented in the form of
a ratio, fraction, percentage or similar representation and that
has a non-GAAP financial measure as one of its components and is
not disclosed in the financial statements of the Company.
A non-GAAP ratio presented and discussed in this press release
is as follows:
- "Adjusted EBITDA margin" represents Adjusted EBITDA
as a percentage of revenue.
Supplementary Financial Measures
A supplementary financial measure: (a) is, or is intended to be,
disclosed on a periodic basis to depict the historical or expected
future financial performance, financial position or cash flow of
the Company; (b) is not presented in the financial statements of
the Company, (c) is not a non-GAAP financial measure; and (d) is
not a non-GAAP ratio.
Key supplementary financial measures presented in this press
release are as follows:
- "Gross profit margin" represents gross profit as a
percentage of revenue.
- "Operating margin" represents operating profit (loss) as
a percentage of revenue.
- "MG&A as a percent of revenue" represents marketing,
general and administrative expense as a percentage of revenue.
RECONCILIATIONS AND CALCULATIONS
Set out below is the calculation of Adjusted EBITDA by segment
for the three months and nine months ended September 30, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
millions
|
|
|
Three months ended
September 30, 2023
|
Nine months ended
September 30, 2023
|
|
|
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
|
|
Operating profit
(loss)
|
$
|
1.3
|
|
152.7
|
|
(13.9)
|
|
140.1
|
$
|
10.0
|
|
169.5
|
|
21.9
|
|
201.3
|
|
|
Depreciation and
amortization
|
|
14.1
|
|
5.6
|
|
0.6
|
|
20.3
|
|
46.2
|
|
16.9
|
|
1.4
|
|
64.4
|
|
|
(Gain) on sale of
assets
|
|
(0.9)
|
|
(139.0)
|
|
1.3
|
|
(138.6)
|
|
(26.9)
|
|
(139.0)
|
|
(54.5)
|
|
(220.4)
|
|
|
(Income) loss from
projects accounted
for using the equity method
|
|
(0.4)
|
|
(4.8)
|
|
-
|
|
(5.2)
|
|
(0.1)
|
|
(13.2)
|
|
-
|
|
(13.3)
|
|
|
Equity Project
EBITDA(1)
|
|
2.4
|
|
13.0
|
|
-
|
|
15.4
|
|
5.3
|
|
35.9
|
|
-
|
|
41.2
|
|
|
Adjusted
EBITDA(1)
|
$
|
16.5
|
|
27.5
|
|
(12.0)
|
|
32.0
|
$
|
34.5
|
|
70.1
|
|
(31.2)
|
|
73.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
millions
|
|
|
Three months ended
September 30, 2022
|
Nine months ended
September 30, 2022
|
|
|
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
|
|
Operating profit
(loss)
|
$
|
63.4
|
$
|
8.3
|
$
|
(10.8)
|
$
|
60.9
|
$
|
77.3
|
$
|
15.1
|
$
|
(35.9)
|
$
|
56.5
|
|
|
Depreciation and
amortization
|
|
17.7
|
|
5.5
|
|
0.6
|
|
23.8
|
|
53.2
|
|
16.1
|
|
1.0
|
|
70.3
|
|
|
(Gain) on sale of
assets
|
|
(2.5)
|
|
-
|
|
-
|
|
(2.5)
|
|
(4.9)
|
|
-
|
|
-
|
|
(4.9)
|
|
|
(Income) from
projects accounted for
using the equity method
|
|
(1.6)
|
|
(3.4)
|
|
-
|
|
(5.0)
|
|
(1.6)
|
|
(10.2)
|
|
-
|
|
(11.8)
|
|
|
Equity Project
EBITDA(1)
|
|
5.0
|
|
10.4
|
|
-
|
|
15.4
|
|
10.9
|
|
30.7
|
|
-
|
|
41.6
|
|
|
Adjusted
EBITDA(1)
|
$
|
82.0
|
$
|
20.7
|
$
|
(10.2)
|
$
|
92.6
|
$
|
135.0
|
$
|
51.7
|
$
|
(35.0)
|
$
|
151.7
|
|
(1) This is
a non-GAAP financial measure. Refer to the "Non-GAAP and
Supplementary Financial Measures" section in this press release for
more information on each non-GAAP financial measure.
|
Set out below is the calculation of Equity Project EBITDA by
segment for the three months and nine months ended September 30, 2023 and 2022:
$
millions
|
|
|
|
Three months ended
September 30, 2023
|
|
Nine months ended
September 30, 2023
|
|
|
Aecon's
proportionate share of
projects accounted for using the
equity method (1)
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
|
|
Operating
profit
|
$
|
2.4
|
$
|
13.0
|
$
|
-
|
$
|
15.4
|
$
|
5.1
|
$
|
35.9
|
$
|
-
|
$
|
41.0
|
|
|
Depreciation and
amortization
|
|
-
|
|
-
|
|
-
|
|
-
|
|
0.2
|
|
-
|
|
-
|
|
0.2
|
|
|
Equity Project
EBITDA(2)
|
$
|
2.4
|
$
|
13.0
|
$
|
-
|
$
|
15.4
|
$
|
5.3
|
$
|
35.9
|
$
|
-
|
$
|
41.2
|
|
$
millions
|
|
|
|
Three months ended
September 30, 2022
|
|
Nine months ended
September 30, 2022
|
|
|
Aecon's
proportionate share of
projects accounted for using the
equity method (1)
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
Construction
|
Concessions
|
Other costs
and
eliminations
|
Consolidated
|
|
|
Operating
profit
|
$
|
4.8
|
$
|
10.4
|
$
|
-
|
$
|
15.2
|
$
|
10.4
|
$
|
30.7
|
$
|
-
|
$
|
41.1
|
|
|
Depreciation and
amortization
|
|
0.2
|
|
-
|
|
-
|
|
0.2
|
|
0.5
|
|
-
|
|
-
|
|
0.5
|
|
|
Equity Project
EBITDA(2)
|
$
|
5.0
|
$
|
10.4
|
$
|
-
|
$
|
15.4
|
$
|
10.9
|
$
|
30.7
|
$
|
-
|
$
|
41.6
|
|
(1)
|
Refer to Note 11
"Projects Accounted for Using the Equity Method" in the September
30, 2023 interim condensed consolidated financial
statements.
|
(2)
|
This is a non-GAAP
financial measure. Refer to the "Non-GAAP and Supplementary
Financial Measures" section in this press release for more
information on each non-GAAP financial measure.
|
STATEMENT ON FORWARD-LOOKING INFORMATION
The information in this press release includes certain
forward-looking statements which may constitute forward-looking
information under applicable securities laws. These forward-looking
statements are based on currently available competitive, financial
and economic data and operating plans but are subject to risks and
uncertainties. Forward-looking statements may include, without
limitation, statements regarding the operations, business,
financial condition, expected financial results, performance,
prospects, ongoing objectives, strategies and outlook for Aecon,
including statements regarding: Oaktree's minority investment in
Aecon Utilities, the expected benefits thereof and results
therefrom, including the focus on utility infrastructure service in
North America and the financial
flexibility provided to accelerate Aecon Utilities' acquisition
strategy and fund strategic growth initiatives; backlog, approach
to add to backlog and the expected results therefrom; expectations
regarding the impact of the four fixed price legacy projects, the
pursuit of and reaching of settlements with respect to such
projects and expected timelines of such projects; its focus on
projects and opportunities procured and delivered under more
collaborative models; its strategic focus on clean energy and other
projects linked to sustainability and the opportunities arising
therefrom; expectations regarding the repayment of the outstanding
convertible debentures at or before maturity and other debt
obligations in 2023; expectations regarding the pipeline of
opportunities available to Aecon; its belief with respect to
further revenue growth over the next few years; the impact of
global and Canadian economic conditions; its plans to maintain a
disciplined capital allocation approach focused on long-term
shareholder value; statements regarding the various phases of
projects for Aecon; expectations regarding ongoing recovery in
travel through Bermuda
International Airport in 2023 and opportunities to add to the
existing portfolio of Canadian and international concessions in the
next 12 to 24 months. Forward-looking statements may in some cases
be identified by words such as "will," "plans," "schedule,"
"forecast," "outlook," "potential," "seek," "strategy," "may,"
"could," "might," "can," "believes," "expects," "anticipates,"
"estimates," "projects," "intends," "prospects," "targets,"
"occur," "continue," "should" or the negative of these terms, or
similar expressions.
In addition to events beyond Aecon's control, there are
factors which could cause actual or future results, performance or
achievements to differ materially from those expressed or inferred
herein including, but not limited to: the risk that the strategic
partnership with Oaktree will not realize the expected results and
may negatively impact the existing business of Aecon Utilities; the
risk that Aecon will not realize the anticipated balance sheet
flexibility from the Investment; the risk that Aecon Utilities will
not realize opportunities to expand its geographic reach and range
of services in the U.S. and execute on its acquisition strategy;
the risk of not being able to drive a higher margin mix of business
by participating in more complex projects, achieving operational
efficiencies and synergies, and improving margins; the risk of not
being able to meet contractual schedules and other performance
requirements on large, fixed priced contracts; the risk of not
being able to meet its labour needs at reasonable costs; the risk
of not being able to address any supply chain issues which may
arise and pass on costs of supply increases to customers; the risk
of not being able, through its joint ventures, to enter into
implementation phases of certain projects following the successful
completion of the relevant development phase; the risk of not being
able to execute its strategy of building strong partnerships and
alliances; the risk of not being able to execute its risk
management strategy; the risk of not being able to grow backlog
across the organization by winning major projects; the risk of not
being able to maintain a number of open, recurring and repeat
contracts; the risk of not being able to accurately assess the
risks and opportunities related to its industry's transition to a
lower-carbon economy; the risk of not being able to oversee, and
where appropriate, respond to known and unknown environmental and
climate change-related risks, including the ability to recognize
and adequately respond to climate change concerns or public,
governmental and other stakeholders' expectations on climate
matters; the risk of not being able to meet its commitment to
meeting its greenhouse gas emissions reduction targets; the risks
associated with the strategy of differentiating its service
offerings in key end markets; the risks associated with undertaking
initiatives to train employees; the risks associated with the
seasonal nature of its business; the risks associated with being
able to participate in large projects; the risks associated with
legal proceedings to which it is a party; the ability to
successfully respond to shareholder activism; and risks associated
with the COVID-19 pandemic and future pandemics and Aecon's ability
to respond to and implement measures to mitigate the impact of
COVID-19 and future pandemics.
These forward-looking statements are based on a variety of
factors and assumptions including, but not limited to that: none of
the risks identified above materialize, there are no unforeseen
changes to economic and market conditions and no significant events
occur outside the ordinary course of business. These assumptions
are based on information currently available to Aecon, including
information obtained from third-party sources. While the Company
believes that such third-party sources are reliable sources of
information, the Company has not independently verified the
information. The Company has not ascertained the validity or
accuracy of the underlying economic assumptions contained in such
information from third-party sources and hereby disclaims any
responsibility or liability whatsoever in respect of any
information obtained from third-party sources.
Risk factors are discussed in greater detail in Section 13 -
"Risk Factors" in the September 30,
2023 MD&A and in the 2022 Annual MD&A dated
February 28, 2023 and available
through SEDAR+ at (www.sedarplus.com). Except as required by
applicable securities laws, forward-looking statements speak only
as of the date on which they are made and Aecon undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
|
(in thousands of
Canadian dollars, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended
|
For the nine months
ended
|
|
|
|
September
30
|
|
September 30
|
September
30
|
|
September 30
|
|
|
|
2023
|
|
2022
|
2023
|
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,239,584
|
|
$
|
1,320,514
|
$
|
3,513,657
|
|
$
|
3,429,666
|
Direct costs and
expenses
|
|
|
(1,193,884)
|
|
|
(1,201,882)
|
|
(3,355,981)
|
|
|
(3,172,413)
|
Gross
profit
|
|
|
45,700
|
|
|
118,632
|
|
157,676
|
|
|
257,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, general and
administrative expense
|
|
|
(28,685)
|
|
|
(42,479)
|
|
(126,028)
|
|
|
(148,305)
|
Depreciation and
amortization
|
|
|
(20,274)
|
|
|
(23,775)
|
|
(64,439)
|
|
|
(70,244)
|
Income from projects
accounted for using the equity method
|
|
|
5,214
|
|
|
5,033
|
|
13,251
|
|
|
11,799
|
Other income
|
|
|
138,154
|
|
|
3,618
|
|
220,883
|
|
|
5,963
|
Operating
profit
|
|
|
140,109
|
|
|
61,029
|
|
201,343
|
|
|
56,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
income
|
|
|
2,288
|
|
|
619
|
|
5,463
|
|
|
880
|
Finance cost
|
|
|
(16,556)
|
|
|
(15,146)
|
|
(49,607)
|
|
|
(40,119)
|
Profit before income
taxes
|
|
|
125,841
|
|
|
46,502
|
|
157,199
|
|
|
17,227
|
Income tax recovery
(expense)
|
|
|
7,584
|
|
|
(12,013)
|
|
(5,004)
|
|
|
(6,532)
|
Profit for the
period
|
|
$
|
133,425
|
|
$
|
34,489
|
$
|
152,195
|
|
$
|
10,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
2.16
|
|
$
|
0.57
|
$
|
2.47
|
|
$
|
0.18
|
Diluted earnings per
share
|
|
$
|
1.63
|
|
$
|
0.45
|
$
|
1.94
|
|
$
|
0.16
|
SOURCE Aecon Group Inc.