Mr. Jean-Louis Servranckx reports

AECON REPORTS SECOND QUARTER 2023 RESULTS

Aecon Group Inc. has released its results for the second quarter of 2023, with an 8-per-cent 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. "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 per cent higher compared with the same period in 2022;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $16.7-million for the three months ended June 30, 2023 (adjusted EBITDA margin of 1.4 per cent), compared with adjusted EBITDA of $38.5-million (adjusted EBITDA margin of 3.4 per cent) in the same period in 2022, and operating profit of $55.6-million, compared with operating profit of $5.1-million in the same period in 2022;
• Net profit of $28.2-million (diluted earnings per share of 38 cents) for the three months ended June 30, 2023, compared with a net loss of $6.4-million (diluted loss per share of 10 cents) 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 with 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 with $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) road building, 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, Alta., 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, Ont. 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 LP, a consortium in which Aecon Concessions is an 8.35-per-cent 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.

Revenue for the three months ended June 30, 2023, of $1,167-million was $44-million, or 4 per cent higher compared with 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 with 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 with 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 ($700,000).

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 with 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 with 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 per cent in 2022 to 3.7 per cent in 2023.

Reported backlog at June 30, 2023, of $6,851-million compares with 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 with $1,305-million in the same period 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 June 30, 2023, MD&A.

Construction segment

Revenue in the construction segment for the three months ended June 30, 2023, of $1,139-million was $35-million or 3 per cent higher compared with the same period in 2022. Revenue was higher in civil operations ($42-million), driven by an increase in major projects in both Eastern and Western Canada, and road building construction work in Western Canada, partially offset by lower volume of road building construction work in Eastern Canada of $52-million as a result of the sale of ATE in the second quarter of 2023. Revenue was also higher in industrial operations ($23-million), driven primarily by increased activity on mainline pipeline work in Western Canada, which offset a lower volume of field construction work primarily at chemical facilities and in utilities operations ($11-million) primarily due to an increase in telecommunications and high-voltage electrical transmission work. Partially offsetting these increases was lower revenue in nuclear operations ($31-million) from a lower volume of refurbishment work at nuclear generating stations located in Ontario and in urban transportation solutions ($10-million) primarily from a decrease in light rail transit (LRT) project work.

Operating loss in the construction segment of $7.5-million in the three months ended June 30, 2023, compares with an operating profit of $12.7-million in the same period in 2022, a decrease of $20.2-million. This decrease was driven by lower gross profit in civil operations due to negative gross profit of $31.3-million in the second quarter of 2023 from one of the four fixed price legacy projects versus a gross profit of $4.3-million in the same period in 2022 from the same project and by a negative gross profit of $50.0-million from one of the four fixed price legacy projects in urban transportation solutions compared with a negative gross profit of $32.8-million from one of the other fixed price legacy projects in urban transportation solutions in the same period last year. The 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 driven by improved results in urban transportation solutions. In addition, operating profit in the period was favourably impacted by an increase in other income of $12.8-million, driven by higher gains on the sale of property, buildings and equipment of $13.8-million primarily in industrial operations, and partially offset by lower foreign exchange gains of $600,000.

Construction backlog at June 30, 2023, was $6,752-million, which was $240-million higher than the same time last year. Backlog increased period over period in nuclear ($810-million) and utilities ($152-million), and decreased in urban transportation solutions ($324-million), civil ($222-million) and industrial operations ($176-million). Backlog at June 30, 2023, excludes all amounts related to ATE, which was sold in the second quarter of 2023 (see Section 5, recent developments, in the June 30, 2023, MD&A), at which time related backlog of $447-million was removed. New contract awards totalled $1.99-billion in the second quarter of 2023 and $2,785-million year to date, compared with $1,279-million and $2,472-million, respectively, in the same periods last year.

Concessions segment

Aecon currently holds a 100-per-cent interest in Skyport, the concessionaire responsible for the Bermuda airport's operations, maintenance and commercial functions, and the entity that will manage and co-ordinate the overall delivery of the Bermuda International Airport redevelopment project over a 30-year concession term that commenced in 2017. On Dec. 9, 2020, Skyport opened the new passenger terminal building at the L.F. Wade International Airport. Aecon's participation in Skyport is consolidated and, as such, is accounted for in the consolidated financial statements by reflecting, line by line, the assets, liabilities, revenue and expenses of Skyport. See Section 5, recent developments, of the June 30, 2023, MD&A for details of an agreement to sell a 49.9-per-cent interest in Skyport. However, Aecon's concession participation in the Eglinton Crosstown light-rail transit, Finch West LRT, Gordie Howe International Bridge, Waterloo LRT and the GO expansion on-corridor works projects are joint ventures that are accounted for using the equity method.

For the three months ended June 30, 2023, revenue in the concessions segment of $27-million was $8-million higher compared with 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 June 30, 2023, improved by $9.2-million. Higher operating profit was largely a result of an improvement in operating results at the Bermuda International Airport, and from an increase in management and development fees.

Except for operations and 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.

Dividend

Aecon's next quarterly dividend of 18.5 cents per share will be paid on Oct. 3, 2023, to shareholders of record as of Sept. 22, 2023.

Outlook

Demand for Aecon's services across Canada continues to be strong. During the first six 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, Alta., 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, Ont. 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 12 months and has a pipeline of opportunities to further add to backlog over time. With backlog of $6.9-billion at June 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 continuing 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 June 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 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 March 15, 2023, Aecon announced that it has entered into an agreement with CC&L Infrastructure to sell a 49.9-per-cent interest in the Bermuda International Airport concessionaire for $128.5-million (U.S.) ($170.1-million equivalent at June 30, 2023) in cash. Closing of this sale transaction is expected in the third quarter of 2023. Upon closing, Aecon expects to use the net proceeds from the transaction to pay down debt on its revolving credit facility. Aecon plans to maintain a disciplined capital allocation approach focused on long-term shareholder value.

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, Ont. In addition, Oneida LP, a consortium in which Aecon Concessions is an 8.35-per-cent equity partner, executed an agreement with the independent electricity system operator for the Oneida energy storage project to deliver a 250-megawatt or 1,000-megawatt-hour energy storage facility near Nanticoke, Ont., 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 a continuing 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 June 30, 2023, Aecon had a committed revolving credit facility of $600-million, of which $188-million was drawn and $11-million utilized for letters of credit. On Dec. 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 six months ended June 30, 2023, and June 30, 2022, are available at the end of this news release.

Conference call

A conference call and live webcast has been scheduled for 9 a.m. Eastern Time on Thursday, July 27, 2023. Participants should dial 1-833-470-1428 or 1-404-975-4839 at least 10 minutes prior to the conference time. The conference ID is 516159. An accompanying presentation of the second quarter 2023 financial results will be available after market close on July 26, 2023, on the company's website.

A live webcast of the conference call will also be available on the company's website.

Participants should join the webcast at least 15 minutes prior to the conference time to register and install any necessary software. For those unable to attend the call, a replay will be available after 2 p.m. Eastern Time on July 27, 2023, at 1-866-813-9403 or 1-929-458-6194, or on-line until midnight on Aug. 24, 2023. The access code is 517090. A replay of the webcast will also be available within 24 hours following the call.

About Aecon Group Inc.

Aecon is a national Canadian construction and infrastructure development company with global experience. Aecon delivers integrated solutions to private-sector and public-sector clients through its construction segment in the civil, urban transportation, nuclear, utility and industrial sectors, an provides project development, financing, investment and management services through its concessions segment.

Non-GAAP (generally accepted accounting principles) and supplementary financial measures

This news release presents certain non-GAAP and supplementary financial measures, as well as non-GAAP ratios to assist readers in understanding the company's performance. These measures do not have any standardized meaning and therefore are unlikely to be comparable with 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.

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