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Aecon Group Inc
Symbol ARE
Shares Issued 60,860,911
Close 2022-04-27 C$ 15.54
Market Cap C$ 945,778,557
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Aecon Group loses $17.4-million in Q1 2022

2022-04-27 16:51 ET - News Release

Mr. Jean-Louis Servranckx reports

AECON REPORTS FIRST QUARTER 2022 RESULTS

Aecon Group Inc. has released results for the first quarter of 2022 with year-over-year increases in revenue, profitability and new contract awards, and backlog of $6.4-billion as at March 31, 2022.

"Aecon is a partner of choice on some of the nation's most transformative infrastructure projects, including our recent selection for the unprecedented GO Rail Expansion project to design, build, operate and modernize transit in Ontario for generations to come," said Jean-Louis Servranckx, president and chief executive officer, Aecon Group. "Supported by a diversified backlog, significant level of new awards, strong demand environment for our services and growing recurring revenue programs, we are poised for future growth and profitability in 2022 and beyond."

Highlights:

  • Revenue for the three months ended March 31, 2022, of $986-million was $232-million, or 31 per cent higher compared with the same period in 2021.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $20.6-million for the three months ended March 31, 2022 (margin of 2.1 per cent) compared with adjusted EBITDA of $20.8-million (margin of 2.8 per cent) in the same period in 2021, and operating loss of $9.6-million compared with an operating loss of $10.2-million in the same period in 2021.
  • After adjusting for the impact of amounts related to the Canada Emergency Wage Subsidy (CEWS) in the first quarter of 2021, adjusted EBITDA of $20.6-million increased by $7.6-million and operating loss of $9.6-million improved by $8.4-million for the three months ended March 31, 2022, compared with the same period in 2021.
  • Net loss of $17.4-million (diluted loss per share of 29 cents) for the three months ended March 31, 2022, compared with a net loss of $18.4-million (diluted loss per share of 31 cents) during the same period in 2021, before adjusting for the impact of CEWS in 2021.
  • Reported backlog as at March 31, 2022, of $6,423-million compares with backlog of $5,913-million as at March 31, 2021.
  • New contract awards of $1,211,000 were booked in the first quarter of 2022 compared with $213-million in the same period in 2021.
  • The Bermuda L.F. Wade International Airport Redevelopment project was recognized with the Gold Award for Transport Project of the Year at the P3 Awards 2021, recognizing the best in P3 infrastructure projects globally.
  • Aecon's third annual sustainability report -- "Building Innovation" -- was released on April 22, outlining Aecon's progress and key accomplishments in responsible ESG (environmental, social, governance) practices. The report highlights Aecon's initiatives to embed sustainable innovations and work toward net-zero construction throughout its operations. Aecon is pleased to report significant progress toward its target to achieve a 30-per-cent reduction in direct carbon dioxide emissions by 2030, with a 15-per-cent year-over-year emissions reduction on an intensity basis.
  • In addition to the strong level of awards in the first quarter of 2022, subsequent to quarter-end:
    • Aecon was awarded a $170-million (U.S.) contract by the government of Saint Vincent and the Grenadines for the design and build of the Kingstown port modernization project works, lot 1: primary cargo port. The value of the contract will be added to Aecon's construction segment backlog in the second quarter of 2022, with an initial design period expected to commence in May, 2022.
    • ONxpress Transportation Partners, a consortium in which Aecon holds a 50-per-cent interest in a civil joint venture, which is undertaking construction, and a 28-per-cent interest in a 25-year operations and maintenance partnership, executed an agreement with Metrolinx and Infrastructure Ontario to deliver the multibillion-dollar GO Rail Expansion On-Corridor Works project in the Greater Golden Horseshoe Area. The contract begins with a two-year collaborative development phase to finalize the scope, commercial structure and pricing of various elements of the project. Certain construction and early works activities will commence during this phase, with operations and maintenance anticipated to commence in the second quarter of 2024. Further information on the contract value and schedule will be disclosed once the development phase is completed.

Revenue for the three months ended March 31, 2022, of $986-million was $232-million, or 31 per cent, higher compared with the same period in 2021. Revenue was higher in the construction segment ($228-million) driven by increases in industrial ($90-million), civil ($64-million), nuclear ($41-million) and utilities operations ($38-million), partially offset by lower revenue in urban transportation solutions ($5-million). In the concessions segment, higher revenue of $3-million for the three months ended March 31, 2022, was primarily due to the improvement of commercial flight operations at the Bermuda International Airport. Intersegment revenue eliminations decreased by $1-million, primarily due to lower revenue between the concessions and construction segments.

Operating loss of $9.6-million for the three months ended March 31, 2022, improved by $600,000 compared with an operating loss of $10.2-million in the same period in 2021. Operating profit in the first quarter of 2021 included a net positive impact from amounts related to the Canada Emergency Wage Subsidy program of $7.8-million, recorded in the construction segment as cost recovery within gross profit. The largest driver of the period-over-period improvement in operating profit was higher gross profit of $3.8-million. After adjusting for the net impact of CEWS amounts reported in the first quarter of 2021, gross profit increased period-over-period by $11.6-million. In the construction segment, gross profit increased by $6.9-million primarily from higher volume and gross profit margin in civil operations and from higher volume in nuclear and utilities operations. Partially offsetting these increases was lower gross profit margin in urban transportation solutions and industrial operations. In the concessions segment, gross profit increased by $4.2-million primarily from an improvement in results from airport operations at the Bermuda International Airport.

Marketing, general and administrative increased in the first quarter of 2022 by $5.4-million compared with the same period in 2021, driven primarily by higher personnel costs and project pursuit and bid costs. However, MG&A as a percentage of revenue decreased from 6.3 per cent in the first quarter of 2021 to 5.4 per cent in the first quarter of 2022.

Aecon's participation in projects that are classified for accounting purposes as a joint venture or an associate, as opposed to a joint operation, are accounted for using the equity method of accounting. In the three months ended March 31, 2022, Aecon reported income of $3-million from projects accounted for using this method of accounting, an increase of $400,000. The increase occurred in the concessions segment ($400,000) from light rail transit (LRT) projects in Ontario.

Reported backlog as at March 31, 2022, of $6,423-million compared with backlog of $5,913-million as at March 31, 2021. New contract awards of $1,211-million were booked in the first quarter of 2022 compared with $213-million in the same period in 2021.

Reporting segments

Aecon reports its financial performance on the basis of two segments: construction and concessions.

Revenue in the construction segment for the three months ended March 31, 2022, of $972-million was $228-million, or 31 per cent, higher compared with the same period in 2021. Construction segment revenue was higher in industrial operations ($90-million) due to increased activity on mainline pipeline work in Western Canada and higher field construction work at mining and chemical facilities, in civil operations ($64-million) from an increase in major projects and road building construction work, in nuclear operations ($41-million) driven by increased volume of refurbishment work at nuclear generating stations in Ontario and the United States, and in utilities operations ($38-million) from increased volume of oil and gas distribution, high-voltage electrical transmission, and telecommunications work. Partially offsetting these increases was lower revenue in urban transportation solutions ($5-million) driven primarily by a lower volume of LRT project work in Ontario.

Operating profit in the construction segment of $1.3-million in the first three months of 2022 decreased by $2.7-million compared with an operating profit of $4-million in the same period in 2021. Construction segment operating profit in the first quarter of 2021 included a net positive impact from amounts related to the CEWS program of $7.8-million. After adjusting for the net impact of CEWS amounts reported in 2021, period-over-period operating profit increased by $5.1-million. This increase resulted primarily from higher volume and gross profit margin in civil operations and higher volume in nuclear and utilities operations. These increases were partially offset by lower gross profit margin in urban transportation solutions and industrial operations.

Construction backlog as at March 31, 2022, was $6,337-million compared with $5,838-million at the same time in 2021. Backlog increased period-over-period in civil ($427-million), industrial ($241-million) and nuclear operations ($239-million), while backlog was lower in urban transportation solutions ($378-million) and utilities ($30-million). New contract awards of $1,193-million in the first quarter of 2022 were $992-million higher than the same period in 2021.

Aecon holds a 100-per-cent interest in Bermuda Skyport Corporation Ltd., 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. However, Aecon's concession participation in the Eglinton Crosstown LRT, Finch West LRT, Gordie Howe International Bridge and Waterloo LRT projects are joint ventures that are accounted for using the equity method.

For the three months ended March 31, 2022, revenue in the concessions segment of $14-million was $3-million higher than the same period in 2021. This higher period-over-period revenue was primarily due to an increase in airport operations ($3-million) at the Bermuda International Airport. Commercial flight operations in Bermuda continue to operate at a reduced volume due to COVID-19 compared with prepandemic levels but have partially recovered from the more severe impacts experienced in 2020 and 2021. Included in concessions revenue for the first quarter of 2022 was nil of construction revenue that was eliminated on consolidation as intersegment revenue (compared with $1-million in the first quarter of 2021).

Operating profit in the concessions segment of $1.5-million for the three months ended March 31, 2022, improved by $4.5-million compared with an operating loss of $3-million in the first three months of 2021, primarily due to results from the Bermuda International Airport.

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.

Financial condition, liquidity and capital resources

As at March 31, 2022, Aecon had a committed revolving credit facility of $600-million, of which $105-million was drawn and $3-million utilized for letters of credit. When combined with an additional $900-million performance security guarantee facility to support letters of credit provided by Export Development Canada, Aecon's committed credit facilities for working capital and letter of credit requirements total $1,500-million. The company has no debt or working capital credit facility maturities until the second half of 2023, except equipment and property loans and leases in the normal course. As at March 31, 2022, Aecon was in compliance with all debt covenants related to its credit facility.

Outlook

Aecon's overall outlook for 2022 remains positive with strong backlog of $6.4-billion at the end of the first quarter, growing recurring revenue programs and a continued strong demand environment for construction services across North America. The company expects that demand for its services will remain healthy for the foreseeable future as federal and local governments across Canada and the U.S. have identified investment in infrastructure as a key source of stimulus as part of economic recovery plans. An Aecon consortium has been selected to deliver the transformative, multibillion-dollar GO Rail Expansion On-Corridor Works project in Ontario under a progressive design, build, operate and maintain contract model. Aecon is also prequalified on a number of large project bids due to be awarded during 2022 and has a robust pipeline of opportunities to further add to backlog over time. Recurring revenue is expected to continue to grow driven by demand in the utilities sector, particularly in telecom and power-related work, and the concessions segment is expected to see airport traffic in Bermuda continue its recovery during 2022 from the impact of the COVID-19 pandemic.

The company is encouraged by the generally positive trend in the lifting of social and economic restrictions in Canada and other jurisdictions related to COVID-19; however, COVID-19 continues to impact the company's operating environment, including its impact on air traffic related to the Bermuda International Airport as well as labour availability, supply chain disruption and the rate of inflation. Until a return to a more normal operating environment, and inflation and supply chain disruption subsides, there is no guarantee that all related costs will be recovered and therefore it is possible that future project margins could be impacted.

In the construction segment, Aecon continues to be well positioned to successfully bid on, secure and deliver major infrastructure projects for government and the private sector as demonstrated by recent awards, growth in recurring revenue programs and strong backlog. Bidding activity continues to be robust with a number of the company's larger pursuits expected to be awarded in 2022. With strong and diverse backlog in hand, Aecon is focused on ensuring solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports continued margin improvement in this segment.

In the concessions segment, in addition to expecting a gradual recovery in travel through the Bermuda International Airport during 2022, 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 in the U.S., where Aecon is prequalified to bid on the I-10 Calcasieu River Bridge P3 project in Louisiana, and in innovative projects with private sector clients that support a collective focus on sustainability and the transition to a net-zero economy.

As noted above, the overall outlook for 2022 is positive with construction continuing on a number of projects that ramped up in 2020 and 2021, a strong level of backlog, and a robust demand environment for Aecon's services, including recurring revenue programs, all subject to the potential for a further deterioration in external economic factors.

Conference call

A conference call and live webcast has been scheduled for 10 a.m. (Eastern Time) on Thursday, April 28, 2022. Participants should dial 1-833-950-0062 or 1-226-828-7575 at least 10 minutes prior to the conference time. The conference ID is 583427. An accompanying presentation of the first quarter 2022 financial results will be available after market close on April 27, 2022, on the Aecon website.

A live webcast of the conference call will also be available on the Aecon 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. on April 28, 2022, at 1-866-813-9403 or 1-929-458-6194, or on-line until midnight on May 12, 2022. The access code is 102265. A replay of the webcast will also be available within 24 hours following the call.

Aecon 2022 annual general meeting

Aecon's annual general meeting will be held virtually on Tuesday, June 7, 2022. Additional details will be set out in the notice of meeting and record date to be filed on SEDAR.

About Aecon Group Inc.

As a Canadian leader in construction and infrastructure development with global expertise, Aecon Group strives to be the No. 1 Canadian infrastructure company and is proud to be recognized as one of the best employers in Canada. Aecon safely, profitably and sustainably 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.

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