Mr. Jean-Louis Servranckx reports

AECON REPORTS YEAR-END 2023 RESULTS

Aecon Group Inc. has released results for the fourth quarter and year-end 2023, including full-year revenue of $4.6-billion and backlog of $6.2-billion at Dec. 31, 2023. Aecon Group's board of directors approved an increase to the quarterly dividend to 19 cents per share from 18.5 cents per share previously.

"Two thousand twenty-three was a transformational year for Aecon -- with our teams focused on safety and execution across all of our projects and driven by three significant transactions, which allowed Aecon to capture unlocked value, partner with respected institutions with significant experience to help Aecon grow, and strengthen Aecon's balance sheet and capital position," said Jean-Louis Servranckx, president and chief executive officer, Aecon Group. "Demand for Aecon's services across Canada continues to be strong, and we are strategically focused on embracing new opportunities to grow in the decarbonization and energy transition space, as well as U.S. and international markets."

Highlights

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

• Revenue for the year ended Dec. 31, 2023, of $4,644-million was $52-million, or 1 per cent, lower compared with 2022. The lower revenue is largely attributable to the sale of the Aecon Transportation East business in the second quarter of 2023, which generated $51-million revenue in 2023 compared with $326-million revenue in 2022.
• Operating profit of $240.9-million (operating margin of 5.2 per cent) compared with operating profit of $97.2-million in 2022 (operating margin of 2.1 per cent). The improvement in year-over-year operating profit was largely due to an increase in other income of $209.4-million. This increase was primarily due to gains related to the sale of a 49.9-per-cent interest in Skyport, the Bermuda International Airport concessionaire, of $139.0-million, including a fair value remeasurement gain of $80.4-million on Aecon Group's 50.1-per-cent retained interest in the concessionaire and the sale of ATE ($36.5-million), and higher gains on the sale of property, buildings and equipment ($38.7-million).
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $143.4-million for the year ended Dec. 31, 2023 (adjusted EBITDA margin of 3.1 per cent), compared with adjusted EBITDA of $219.2-million (adjusted EBITDA margin of 4.7 per cent) in 2022.
• Net profit of $161.9-million (diluted earnings per share of $2.10) for the year ended Dec. 31, 2023, compared with net profit of $30.4-million (diluted earnings per share of 47 cents) in 2022.
• Four large fixed-price legacy projects being performed by joint ventures in which Aecon Group is a participant (see Section 5, "Recent Developments," Section 10.2, "Contingencies," and Section 13, "Risk Factors," of the company's Dec. 31, 2023, management's discussion and analysis, which is available on the company's profile on SEDAR+, 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 2023, due to the factors discussed above that impacted these four fixed-price legacy projects during the year, Aecon Group recognized an operating loss of $215.2-million arising from three of the four projects compared with an operating loss of $120.0-million in 2022. At Dec. 31, 2023, the remaining backlog to be worked off on these projects was $420-million compared with $1,079-million at Dec. 31, 2022.
• Reported backlog at Dec. 31, 2023, of $6,157-million compared with backlog of $6,296-million at Dec. 31, 2022. New contract awards of $4,505-million were booked in 2023 compared with $4,795-million in 2022.
• Aecon Group was awarded a $290-million design-build contract by the Ontario government for the Eglinton Crosstown west extension project's elevated guideway in Ontario. The value of the contract was added to Aecon Group's construction segment backlog in the fourth quarter of 2023.
• Aecon Group was awarded a $200-million (U.S.) contract by Dominion Energy for the replacement of condensers and feedwater heaters at the North Anna power station in Mineral, Va. The value of the contract was added to Aecon Group's construction segment backlog in the fourth quarter of 2023.
• Aecon Group announced the full cash repayment of the $184-million principal amount owed under its 5.0 per cent unsecured convertible debentures along with accrued unpaid interest on Dec. 29, 2023.
• Subsequent to year-end, Contrecoeur Terminal Constructors General Partnership, a consortium in which Aecon Group holds a 40-per-cent interest, executed a contract with the Montreal Port Authority for the Contrecoeur terminal expansion project in-water works under a progressive design-build approach in Quebec.
• Subsequent to year-end, Wicehtowak Aecon Industrial LP, a joint venture in which Aecon Group holds a 49-per-cent interest, was awarded a $222-million contract by BHP Canada for the Jansen Stage 1 wet mill area -- structural, mechanical, piping, electrical and instrumentation project in Saskatchewan.

Revenue for the year ended Dec. 31, 2023, of $4,644-million was $52-million, or 1 per cent, lower compared with 2022. Revenue was lower in the construction segment ($48-million) driven by lower revenue in civil ($65-million), nuclear ($33-million), industrial ($24-million) and utilities ($5-million), partially offset by higher revenue in urban transportation solutions ($79-million). The lower revenue in civil was driven by a year-over-year decrease of $275-million as a result of the sale of ATE in the second quarter of 2023. In the concessions segment, revenue was $2-million lower in 2023 compared with the prior year primarily due to the Bermuda International Airport concessionaire. Subsequent to the sale of a 49.9-per-cent interest in Skyport on Sept. 20, 2023, the company's retained 50.1-per-cent interest in Skyport is reported using the equity method of accounting, and as such, no amounts are reported in revenue on a prospective basis by Aecon Group (see Section 5, "Recent Developments," of the company's Dec. 31, 2023, management's discussion and analysis for details of the sale of a 49.9-per-cent interest in Skyport and Note 12, "Projects Accounted for Using the Equity Method," in the company's audited consolidated financial statements for the year ended Dec. 31, 2023). Intersegment revenue eliminations increased by $2-million in 2023 compared with the prior year, due to higher revenue between the concessions and construction segments.

Operating profit of $240.9-million for the year ended Dec. 31, 2023, improved by $143.7-million compared with operating profit of $97.2-million in 2022. The improvement in year-over-year operating profit was largely due to an increase in other income of $209.4-million. This increase was primarily due to gains related to the sale of a 49.9-per-cent interest in Skyport of $139.0-million, including a fair value remeasurement gain of $80.4-million on Aecon Group's 50.1-per-cent retained interest in the concessionaire, and the sale of ATE ($36.5-million). Also contributing to the increase in other income were higher gains on the sale of property, buildings and equipment ($38.7-million, of which $20.7-million was included in the construction segment and $18.0-million in corporate), and a higher fair value gain on financial instruments ($900,000), partially offset by lower foreign exchange gains ($1.4-million) and lower gains on other assets ($4.3-million).

The increase in operating profit from the above noted increase in other income was partially offset by lower gross profit in 2023 of $100.4-million. In the construction segment, gross profit decreased by $101.6-million primarily as a result of negative gross profit related to four fixed-price legacy projects in 2023 of $215.2-million, arising from three of the four projects, two of which were in urban transportation solutions and one in the civil sector, compared with negative gross profit on the fixed-price legacy projects of $120.0-million in 2022. These four fixed-price legacy projects are discussed in Section 5, "Recent Developments," Section 10.2, "Contingencies," and Section 13, "Risk Factors," in the company's Dec. 31, 2023, management's discussion and analysis, which is available on the company's profile on SEDAR+. In addition to the impact of these four fixed-price legacy projects in 2023, 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, a volume-driven decrease in gross profit in utilities, and lower volume and gross profit margin in nuclear operations, partially offset by improved gross profit margin in urban transportation solutions and industrial operations. In the concessions segment and corporate, gross profit in 2023 increased by $1.2-million compared with 2022.

Marketing, general and administrative decreased in 2023 by $18.6-million compared with 2022. The decrease in MG&A was primarily due to lower personnel, project pursuit and bid costs, as well as the impact of the sale of ATE in the second quarter of 2023. MG&A as a percentage of revenue decreased from 4.2 per cent in 2022 to 3.8 per cent in 2023.

Reported backlog at Dec. 31, 2023, of $6,157-million compares with backlog of $6,296-million at Dec. 31, 2022. New contract awards of $4,505-million were booked in 2023 compared with $4,795-million in 2022.

Dividend

Aecon Group's board of directors approved an increase to the quarterly dividend to 19 cents per share from 18.5 cents per share previously. The first increased dividend will be paid on April 3, 2024, to shareholders of record on March 22, 2024. Unless indicated otherwise, all common share dividends paid by Aecon Group to shareholders are designated as eligible dividends for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

Outlook

Two thousand twenty-three was a transformational year for Aecon Group driven by three significant transactions which allowed the company to capture unlocked value in these assets, partner with respected institutions with significant experience to help Aecon Group grow, better align to its strategy, and strengthen Aecon Group's balance sheet and capital position.

Moving forward, Aecon Group's goal is to build a resilient company through a balanced and diversified work portfolio across sectors, markets, geographies, project types, sizes and delivery models while enhancing critical execution capabilities and project selection to play to its strengths. Aecon Group will continue to leverage its self-perform capabilities and one Aecon approach with a goal to maximize value for clients through improved cost certainty and schedule, while offering a broad range of infrastructure services from development, engineering, investment and construction to longer-term operations and maintenance. Aecon Group will continue to pursue and deliver the majority of its work in established markets while embracing new opportunities to grow in areas linked to decarbonization and energy transition, and in U.S. and international markets. These opportunities are intended over the long term to diversify Aecon Group's geographic presence, provide further growth opportunities and deliver more consistent earnings through economic cycles. To complement its priority markets, Aecon Group is pursuing a balanced portfolio of work delivered through both fixed- and non-fixed-price contracting models with the goal of reducing fixed-price work to balance risk with acceptable returns.

Demand for Aecon Group's services across Canada continues to be strong. Revenue from recurring revenue programs increased to $1,134-million in 2023 from $896-million in 2022, representing growth in recurring revenue programs of 27 per cent over 2022. In addition, development phase work is continuing in consortiums in which Aecon Group is a participant to deliver the long-term GO expansion on-corridor works project, the Scarborough subway extension stations, rail and system project, and the Darlington new nuclear project, all in Ontario. These projects are being delivered using progressive design-build or alliance models, and each project is expected to move into the construction phase in 2025. The GO expansion on-corridor works project also includes an operations and maintenance component over a 23-year term commencing Jan. 1, 2025. None of the anticipated work from these three significant long-term projects is yet reflected in backlog. With backlog of $6.2-billion at the end of 2023, recurring revenue programs continuing to see robust demand and a strong bid pipeline, Aecon Group believes it is positioned to achieve further revenue growth over the next few years, and is focused on achieving improved profitability and margin predictability.

In the construction segment, Aecon Group was awarded a number of projects in 2023 that were added to backlog, including delivery of the Deerfoot trail improvements project in Calgary, Alta., the elevated guideway for the Eglinton Crosstown west extension project in Toronto, Ont., the replacement of condensers and feedwater heaters for Dominion Energy in Mineral, Va., and an Aecon Group joint venture awarded the fuel channel and feeder replacement contract for four units at the Bruce nuclear generating station in Tiverton, 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/1,000-megawatt-hour energy storage facility near Nanticoke, Ont., with Aecon Group awarded a $141-million engineering, procurement and construction contract by Oneida.

In the concessions segment, 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, as well as private sector development expertise and investment to support aging infrastructure, mobility, connectivity and population growth. The GO expansion on-corridor works project and the Oneida energy storage project noted above are examples of the role Aecon Group's concessions segment is playing in developing, operating and maintaining assets related to this transition.

Global and Canadian economic conditions impacting inflation, interest rates and overall supply chain efficiency have stabilized, and these factors 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 Group'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," Section 10.2, "Contingencies," and Section 13, "Risk Factors," in the company's Dec. 31, 2023, management's discussion and analysis regarding the risk on four large fixed-price legacy projects entered into in 2018 or earlier by joint ventures in which Aecon Group is a participant.

At Dec. 31, 2023, Aecon Group held cash and cash equivalents, excluding balances held by joint operations, of $259-million. In addition, at Dec. 31, 2023, Aecon Group had committed revolving credit facilities of $850-million, of which $112-million was drawn, and $6-million was utilized for letters of credit. On Dec. 29, 2023, Aecon Group repaid, in cash, convertible debentures with a face value of $184-million. The company has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course. Aecon Group plans to maintain a disciplined capital allocation approach focused on long-term shareholder value through acquisitions and divestitures, organic growth, dividends, and capital investments. Capital expenditures in 2024 are expected to be similar to previous years.

Two thousand twenty-four revenue will be impacted by the three strategic transactions completed in 2023, the substantial completion of several large projects in 2023 and the three major projects currently in the development phase by consortiums in which Aecon Group is a participant being delivered using the progressive design-build models which are expected to move into the construction phase in 2025. The completion and satisfactory resolution of claims on the four legacy projects with the respective clients remain a critical focus for the company and its partners, while the rest of the business continues to perform as expected, supported by the strong level of backlog and new awards during 2023, and the strong demand environment for Aecon Group's services, including recurring revenue programs.

Conference call

A conference call and live webcast have been scheduled for 9 a.m. Eastern Time on Wednesday, March 6, 2024. A live webcast of the conference call will be available at the Aecon Group website. Participants can also dial in to the conference call and preregister. After registering, an e-mail 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.

An accompanying presentation of the fourth quarter and year-end 2023 financial results will also be available after market close on March 5, 2024, at the Aecon Group website. For those unable to attend, a replay will be available within one hour following the live webcast and conference call.

Aecon Group 2024 annual meeting of shareholders

Aecon Group's annual meeting of shareholders will be held on Tuesday, June 4, 2024. Additional details will be set out in the notice of annual meeting of shareholders and management information circular, which will be filed on SEDAR+ prior to the meeting.

About Aecon Group Inc.

Aecon Group (Toronto Stock Exchange: ARE) is a North American construction and infrastructure development company with global experience. Aecon Group 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, management, and operations and maintenance services through its concessions segment.

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