Mr. Jean-Louis Servranckx reports

AECON REPORTS YEAR-END 2022 RESULTS

Aecon Group Inc. has released its results for the fourth quarter and year-end 2022 including record full year revenue of $4.7-billion and backlog of $6.3-billion as at Dec. 31, 2022.

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

Highlights

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

• Revenue for the year ended Dec. 31, 2022, of $4,696-million was $719-million, or 18 per cent, higher compared with 2021.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $219.2-million for the year ended Dec. 31, 2022 (adjusted EBITDA margin of 4.7 per cent), compared with adjusted EBITDA of $238.9-million (adjusted EBITDA margin of 6.0 per cent) in 2021 and operating profit of $97.2-million (operating margin of 2.1 per cent) compared with operating profit of $118.8-million in 2021 (operating margin of 3.0 per cent).
• Operating profit and adjusted EBITDA in 2021 included a net positive impact related to the Canada Emergency Wage Subsidy (CEWS) of $31.9-million.
• Net profit of $30.4-million (diluted earnings per share of 47 cents) for the year ended Dec. 31, 2022, compared with net profit of $49.7-million (diluted earnings per share of 78 cents) in 2021.
• Four large fixed price legacy projects being performed by joint ventures in which Aecon is a participant are being negatively impacted due to additional costs for which the joint ventures assert that the owners are contractually responsible, including for, among other things, unforeseeable site conditions, third party delays, COVID-19, supply chain disruptions, and inflation related to labour and materials. In 2022, due to the factors discussed herein that impacted these four fixed price legacy projects during the year, Aecon recognized an operating loss of $120.0-million related to these four projects.
• Reported backlog as at Dec. 31, 2022, of $6,296-million compared with backlog of $6,198-million as at Dec. 31, 2021. New contract awards of $4,795-million were booked in 2022 compared with $3,721-million in 2021, a 29-per-cent year-over-year increase.
• Aecon-EBC General Partnership, a consortium in which Aecon holds a 60-per-cent interest and is the lead partner, was awarded the first phase of a $245-million two-phase civil construction contract by B.C. Hydro for the John Hart Dam seismic upgrade project in British Columbia. Aecon's share of the contract was added to its construction segment backlog in the fourth quarter of 2022.
• Oneida Energy Storage LP, a consortium in which Aecon Concessions will be an approximately 10-per-cent equity partner upon financial close, executed an agreement with the Independent Electricity System Operator (IESO) for the Oneida Energy Storage project to deliver a 250-megawatt/1,000-megawatt-hour energy storage facility in Ontario, which would currently represent the largest battery storage project in Canada. Under the agreement, Aecon was awarded a $141-million engineering, procurement and construction contract by Oneida LP.
• Also in the fourth quarter, Scarborough Transit Connect, a consortium in which Aecon holds a 50-per-cent interest and is the lead partner, executed an agreement with Metrolinx and Infrastructure Ontario to deliver the Scarborough Subway Extension Stations, Rail and Systems project in Ontario using a progressive design-build model. The contract begins with a collaborative development phase to finalize the scope, cost and schedule of various elements of the project over an 18-month period, with certain early works activities commencing during this phase. Assuming successful completion of the development phase, an implementation phase will commence under a target price contract. The full value of the contract will not be reflected in backlog until completion of the development phase.
• Subsequent to year-end a partnership in which Aecon is a participant executed a six-year alliance agreement with Ontario Power Generation to deliver North America's first grid-scale small modular reactor through the Darlington New Nuclear project in Ontario.

Revenue for the year ended Dec. 31, 2022, of $4,696-million was $719-million, or 18 per cent, higher compared with 2021. Revenue was higher in the construction segment ($706-million) driven by higher revenue in civil ($412-million), utilities ($111-million), nuclear ($96-million), industrial ($78-million) and urban transportation solutions ($9-million). In the concessions segment, revenue was $7-million higher in the year ended Dec. 31, 2022, compared with the prior year primarily due to an increase in commercial flight operations at the Bermuda International Airport. Intersegment revenue eliminations decreased by $6-million in the year ended Dec. 31, 2022, compared with the prior year, due to lower revenue between the concessions and construction segments.

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

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

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

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

Reporting segments

Aecon reports its financial performance on the basis of two segments: construction and concessions, which are described in the company's Dec. 31, 2022, MD&A.

Dividend

Aecon's next quarterly dividend of 18.5 cents per share will be paid on April 4, 2023, to shareholders of record at the close of business on March 24, 2023. Unless indicated otherwise, all common share dividends paid by Aecon to shareholders are designated as eligible dividends for the purpose of the Income Tax Act (Canada) and any similar provincial legislation.

Outlook

Demand for Aecon's services across Canada continues to be strong, particularly in smaller and medium sized projects, as evidenced by year-over-year revenue growth of 18 per cent and higher new project awards of 31 per cent in 2022. Revenue of $4.7-billion in 2022 represented a record level for Aecon. 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 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 $6.3-billion as at Dec. 31, 2022, and recurring revenue programs continuing to see robust demand, driven by the utilities sector and continuing recovery in airport traffic in Bermuda, 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 -- see Section 5, Section 10.2 and Section 13 in the company's Dec. 31, 2022, 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.

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 herein, 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 will be an approximately 10-per-cent equity partner upon financial close, 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 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 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 herein are examples of the role Aecon's concessions segment is playing in developing, operating and maintaining assets related to this transition.

As of Dec. 31, 2022, Aecon had a committed revolving credit facility of $600-million, of which $121-million was drawn and $3-million was 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 months and years ended Dec. 31, 2022, and 2021 are available at the end of this news release.

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Conference call

A conference call and live webcast has been scheduled for 10 a.m. ET on Wednesday, March 1, 2023. 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 630945. An accompanying presentation of the fourth quarter and year-end 2022 financial results will be available after market close on Feb. 28, 2023.

A live webcast of the conference call will also be available at 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. ET on March 1, 2023, at 1-866-813-9403 or 1-929-458-6194, or on-line until midnight on March 29, 2023. The access code is 542156. A replay of the webcast will also be available within 24 hours following the call.

Aecon 2023 annual meeting of shareholders

Aecon's annual meeting of shareholders will be held on Tuesday, June 6, 2023. 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.

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 and Best 50 Corporate Citizens 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.

We seek Safe Harbor.