Aecon reports year-end 2020 results

TORONTO, Feb. 25, 2021 /CNW/ - Aecon Group Inc. ARE today reported results for the fourth quarter and year-end 2020 including full year revenue of $3.6 billion and backlog of $6.5 billion as at December 31, 2020. Aecon's Board of Directors approved an increase to the quarterly dividend to 17.5 cents per share from 16 cents per share previously.

"Aecon's 2020 results demonstrate yet again the strength and resiliency of our purpose-built and diverse business.  Our backlog, new awards and recurring revenue programs helped us navigate the challenges of a pandemic environment," said Jean-Louis Servranckx, President & CEO, Aecon Group Inc. "We are incredibly proud of Aecon's employees, especially our front-line workers, for their dedication and professionalism during these challenging times, and remain committed to operating safely as well as continuing to follow stringent COVID-19 health and safety protocols across our business." 

HIGHLIGHTS 

• Revenue for the year ended December 31, 2020 of $3,644 million was $183 million, or 5%, higher compared to 2019.
• Operating profit of $149.9 million for the year ended December 31, 2020 increased by $42.6 million compared to operating profit of $107.3 million in 2019.
• Adjusted EBITDA of $264.5 million for the year ended December 31, 2020 (margin of 7.3 per cent) compared to Adjusted EBITDA of $221.9 million (margin of 6.4 per cent) in 2019.
• Net income of $88.0 million (diluted earnings per share of $1.29) for the year ended December 31, 2020 increased by $15.1 million compared to net income of $72.9 million (diluted earnings per share of $1.12) in 2019.
• Reported backlog as at December 31, 2020 of $6,454 million compares to backlog of $6,790 million as at December 31, 2019. New contract awards of $3,308 million were booked in 2020 compared to $3,429 million in 2019.
• Quarterly dividend is increased to 17.5 cents per share from 16 cents per share previously, with this being the ninth annual increase in the last ten years.
• Aecon celebrated the opening of Bermuda's new world-class passenger terminal building at the L.F. Wade International Airport on December 9, 2020, marking a significant milestone for Aecon's 30-year concession to operate the airport.
• In the fourth quarter, a joint venture in which Aecon holds a 50% share and is the lead partner, reached financial close on the Kicking Horse Canyon Project – Phase 4 in British Columbia. The total contract is valued at $440.6 million.
• Aecon is proud to announce it has been named one of the Best Employers in Canada for 2020, underscoring its reputation as a First-Choice Employer nationwide by the Kincentric Best Employers program. Of note, Aecon employees rated their employment experience among the top 20 in Canada in the areas of employee engagement, agility, engaging leadership, and talent focus.
• Aecon was pleased to publish its Aecon Magazine 2021 on February 2, celebrating Aecon's people, projects, and partnerships.

Revenue for the year ended December 31, 2020 of $3,644 million was $183 million, or 5%, higher compared to 2019. Although revenue in 2020 was negatively impacted by COVID-19, particularly in certain end market sectors, due to a number of project suspensions, delays, or modified schedules, growth compared to 2019 was achieved in the Construction segment ($227 million) driven by higher revenue in industrial operations ($285 million), utilities ($95 million), and civil operations and urban transportation systems ($95 million). These increases were partially offset by lower revenue in nuclear operations ($248 million). In the Concessions segment, lower revenue of $120 million was primarily due to the suspension of commercial flight operations on March 20, 2020 at the Bermuda International Airport Redevelopment Project. Since reopening of the airport on July 1, 2020, commercial flight operations have been at a significantly reduced volume compared to the prior year for reasons related to the COVID-19 pandemic. This decrease in Concessions segment revenue was partially offset by inter-segment revenue eliminations that decreased by $76 million, primarily due to revenue between the Concessions and Construction segments related to construction activity at the Bermuda International Airport Redevelopment Project.

Operating profit of $149.9 million for the year ended December 31, 2020 increased by $42.6 million compared to operating profit of $107.3 million in 2019. The negative revenue impact of COVID-19 had a corresponding impact on operating profit, primarily due to the loss of related gross profit from affected projects in 2020. However, operating profit in 2020 included a net positive impact from amounts related to the Canada Emergency Wage Subsidy ("CEWS") program ($79.7 million), recorded in the Construction segment as cost recovery within gross profit ($89.4 million) and as an increase in MG&A ($9.7 million). This subsidy offset the impacts of COVID-19 on Aecon's business since March 2020 while assisting Aecon to maintain normal employment levels through this period.

As noted above, gross profit in 2020 of $401.3 million was positively impacted by amounts related to the CEWS program of $89.4 million. Excluding the impact of CEWS, gross profit decreased by $55.7 million compared to 2019. In the Construction segment, gross profit decreased by $9.1 million, primarily from lower gross profit margin in civil operations and urban transportation systems and from lower volume in nuclear operations. These decreases were partially offset by a volume driven increase in gross profit in industrial operations. In the Concessions segment, gross profit in 2020 decreased by $46.3 million due to the suspension of commercial flight operations on March 20, 2020 at the Bermuda International Airport Redevelopment Project followed by a lower volume of commercial flights compared to the prior year after reopening of the airport on July 1, 2020, for reasons related to the COVID-19 pandemic.

Marketing, general and administrative expense ("MG&A") decreased in 2020 by $1.0 million compared to 2019. As noted previously, $9.7 million of client and employee related expenses directly attributable to the amount to be received from the CEWS program was recorded in MG&A in 2020. This amount was more than offset by a decrease in discretionary costs in 2020. MG&A as a percentage of revenue decreased from 5.3% in 2019 to 5.0% in 2020.

Reported backlog as at December 31, 2020 of $6,454 million compares to backlog of $6,790 million as at December 31, 2019. New contract awards of $3,308 million were booked in 2020 compared to $3,429 million in 2019.

REPORTING SEGMENTS

Aecon reports its financial performance on the basis of two segments: Construction and Concessions. 

CONSTRUCTION SEGMENT

Financial Highlights

For the year ended December 31, 2020, revenue in the Construction segment of $3,614 million was $227 million, or 7%, higher than in 2019.  Construction segment revenue was higher in industrial operations ($285 million) primarily due to increased activity on mainline pipeline projects in western Canada, and in civil operations and urban transportation systems ($95 million) driven by increases in major projects and roadbuilding operations in both eastern and western Canada. Revenue was also higher in utilities operations ($95 million), due in large part to the acquisition of Voltage Power announced on February 3, 2020, which contributed revenue of $67 million in 2020. Partially offsetting these increases was lower revenue from nuclear operations ($248 million), driven primarily by a decrease in refurbishment work at the Darlington nuclear facility in Ontario as new work on the next unit of the main reactor was delayed from the second to the fourth quarter of 2020 due to impacts related to COVID-19, and from lower revenue in the first quarter of 2020 as the volume of work on the now completed first reactor refurbishment at Darlington wound down.

Operating profit in the Construction segment of $193.2 million in 2020 increased by $67.2 million compared to 2019. As previously noted, Construction segment operating profit in 2020 included an operating profit impact of $79.7 million related to the CEWS program covering the period from March 15 to December 31, 2020. After excluding amounts related to the CEWS program, operating profit in 2020 decreased by $12.5 million compared to the same period in 2019. Lower operating profit was primarily driven by a volume driven decrease in nuclear operations and lower gross profit margin in civil operations and urban transportation systems. These decreases were partially offset by higher operating profit in industrial operations primarily from increased volume.

Construction backlog as at December 31, 2020 was $6,382 million, which was $353 million lower than the same time last year. Backlog decreased year-over-year in civil operations and urban transportation systems ($352 million), industrial ($145 million), and increased in utilities operations ($136 million) and nuclear ($8 million).  New contract awards in 2020 totalled $3,261 million compared to $3,337 million in 2019.

CONCESSIONS SEGMENT

Financial Highlights

Aecon holds a 100% interest in Bermuda Skyport Corporation Limited ("Skyport"), the concessionaire responsible for the Bermuda 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. 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 Light Rail Transit ("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 year ended December 31, 2020, revenue in the Concessions segment of $98 million was $120 million lower than in 2019. The lower revenue was due to the suspension of commercial flight operations on March 20, 2020 at the Bermuda International Airport Redevelopment Project followed by a lower volume of commercial flights compared to the prior year after reopening of the airport on July 1, 2020, for reasons related to the COVID-19 pandemic, as well as from decreased construction activity related to this project. Included in Concessions' revenue for 2020 was $65 million of construction revenue that was eliminated on consolidation as inter-segment revenue (compared to $136 million in 2019).

Operating loss in the Concessions segment of $2.7 million for the year ended December 31, 2020 worsened by $31.9 million compared to an operating profit of $29.2 million in 2019. The lower operating profit occurred in the Bermuda International Airport Redevelopment Project and resulted from the above noted COVID-19 impact on airport operations.

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

Aecon's financial position, liquidity and capital resources remain strong, and are expected to be sufficient to finance its operations and working capital requirements for the foreseeable future. As part of the CEWS program, the Company received payments totalling $107.3 million in 2020, with another $4.2 million in payments expected in the first quarter of 2021 for CEWS periods up to December 31, 2020. As at December 31, 2020, Aecon had $100.5 million of cash on hand (excluding cash in joint operations and restricted cash), and a committed revolving credit facility of $600 million, of which $nil was drawn and $6 million utilized for letters of credit. Subsequent to year-end, the performance security guarantee facility provided by Export Development Canada to support letters of credit was increased from $700 million to $900 million. This facility, when combined with Aecon's committed revolving credit facility, provides Aecon with committed credit facilities for working capital and letter of credit requirements totalling $1,500 million. The Company has no debt or working capital credit facility maturities until the second half of 2023, except equipment loans and leases in the normal course.  As at December 31, 2020, Aecon was in compliance with all debt covenants related to its credit facility.

DIVIDEND

Aecon's Board of Directors approved an increase to the quarterly dividend to 17.5 cents per share from 16 cents per share previously. The first increased dividend will be paid on April 5, 2021 to shareholders of record on March 23, 2021. 

OUTLOOK

Aecon's overall outlook for 2021 remains positive despite the ongoing background of COVID-19. Backlog and the level of new awards in 2020 remained strong, particularly in light of the challenges of a pandemic environment, with backlog of $6.5 billion at the end of 2020, new awards of $3.3 billion during the year, and strong recurring revenue programs, primarily in the utilities sector. The Company expects that demand for its services will remain healthy for the foreseeable future as the federal government and provincial governments across Canada have identified investment in infrastructure as a key source of stimulus as part of the economic recovery plan. Aecon is pre-qualified on a number of large project bids due to be awarded during 2021 and has a robust pipeline of opportunities to further add to backlog over time. In addition, recurring revenue in the utilities sector is expected to grow based on the capital investment plans of a number of key clients, particularly in the telecommunications sector.

Despite this overall positive outlook, the COVID-19 pandemic is expected to continue to have some impact in moderating overall revenue and profitability growth expectations in 2021, either due to client decisions related to schedules or operating policies or due to broader government directives to modify work practices to meet relevant health and safety standards. In particular, due to an increase in cases in the province and concern around the impact of workers traveling to remote communities and in some cases living in shared accommodation facilities at the worksite, the government of British Columbia reduced employment levels in January 2021 at a number of northern construction sites, including the Site C Clean Energy Project and the Coastal GasLink pipeline project, both of which Aecon is actively working on. Additionally, a small number of construction projects have been impacted by cases of COVID-19 as infections in the community have increased across Canada, which has resulted in an increase in the number of employees quarantining and self-isolating as a precautionary measure. While the primary impact from COVID-19 will be to reduce revenue in certain areas of Aecon's Construction segment until normal operations fully resume, there is no guarantee that all related costs will be recovered and therefore it is possible that future project margins could be impacted as well.

In the Concessions segment, the new Bermuda International Airport terminal opened for operations on December 9, 2020. The opening of the new terminal marks a significant milestone for the Company and completes the construction portion of this project that was awarded in March 2017. Commercial operations at the Bermuda International Airport continue to recover slowly due to COVID-19 related travel restrictions, which have significantly impacted the aviation industry. The aviation industry is not expected to improve meaningfully until significant portions of the global population have been vaccinated and existing travel restrictions are lifted.

As a Canadian employer whose business has been affected by COVID-19, Aecon expects to continue its participation in the CEWS program throughout the program's duration, subject to meeting the applicable eligibility requirements. The Company expects the contribution from CEWS to be lower in the first quarter of 2021 as compared to the fourth quarter of 2020 due to lower seasonal work and therefore lower payroll cost, and expects lower contribution overall from CEWS in 2021 compared to 2020 due to the expected reduced impact of COVID-19 on revenue in 2021, the lower subsidy rates that now apply compared to earlier phases of the program, and an anticipated end to the program in June 2021.

Capital expenditures in 2021 are expected to be higher than 2020 as a result of deferred capital spending in 2020 due to COVID-19, with spending in 2021 expected to be more in line with 2019.

As noted above, the overall outlook for 2021 remains strong as construction continues on a number of projects that ramped up in 2019 and 2020, the strong level of backlog and new awards during 2020, and the strong demand environment for Aecon's services, including recurring revenue programs, all subject to the unknown impacts of COVID-19 going forward.

CONSOLIDATED RESULTS

The consolidated results for the three months and years ended December 31, 2020 and 2019 are available at the end of this news release.

BALANCE SHEET

CONFERENCE CALL

A conference call and live webcast has been scheduled for 10 a.m. (Eastern Time) on Friday, February 26, 2021. Participants should dial 1-877-823-8624 or 647-689-5656 at least 10 minutes prior to the conference time. The conference ID is 7963898. An accompanying presentation of the fourth quarter and year-end 2020 financial results will be available after market close on February 25, 2021 at www.aecon.com/investing.  

A live webcast of the conference call will also be available at www.aecon.com/InvestorCalendar. 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 February 27, 2021 at 1-800-585-8367 or 416-621-4642 until midnight on March 12, 2021. The conference ID is 7963898. A replay of the webcast will also be available within 24 hours following the call.

AECON 2021 ANNUAL GENERAL MEETING 

Aecon's Annual General Meeting will be held virtually on Tuesday, June 8, 2021. Additional details will be set out in the Notice of Meeting and Record Date to be filed on SEDAR.

ABOUT AECON

As a Canadian leader in construction and infrastructure development with global expertise, Aecon Group Inc. ARE strives to be the number one 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. Join our online community on Twitter, LinkedIn, Facebook and Instagram @AeconGroup.

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 Canadian Generally Accepted Accounting Principles). 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.

Management uses these non-GAAP and supplementary financial measures, as well as certain non-GAAP ratios to analyze and evaluate operating performance. Aecon also believes the financial measures defined below 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 profit (loss) attributable to shareholders or earnings (loss) per share.

Throughout this press release, the following terms are used, which are not found in the Chartered Professional Accountants of Canada Handbook and 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 primary 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 Section 9 - "Quarterly Financial Data" in the Company's Management's Discussion and Analysis ("MD&A") available through the System for Electronic Document Analysis and Retrieval at www.sedar.com. 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, net financing expense and income taxes (refer to Section 9 - "Quarterly Financial Data" in the Company's MD&A available through the System for Electronic Document Analysis and Retrieval at www.sedar.com. for a quantitative reconciliation to the most comparable financial measure).
  
  
• "Backlog" 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.

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 or losses from projects accounted for using the equity method, foreign exchange, net financing expense, gain (loss) on sale of assets and investments, income taxes, and non-controlling interests.
  
  
• "Operating profit (loss)" represents the profit (loss) from operations, before net financing expense, income taxes 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 International Financial Reporting Standards ("IFRS"), but rather should be evaluated in conjunction with such IFRS 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.

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 discussed 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.

STATEMENT ON FORWARD-LOOKING INFORMATION

The information in this press release includes certain forward-looking statements. 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 the sufficiency of Aecon's liquidity and working capital requirements for the foreseeable future. Forward-looking statements may in some cases be identified by words such as "will," "plans," "believes," "expects," "anticipates," "estimates," "projects," "intends," "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 timing of projects, unanticipated costs and expenses, the failure to recognize and adequately respond to climate change concerns or public and governmental expectations on climate matters, general market and industry conditions and operational and reputational risks, including large project risk and contractual factors, and risks relating to the COVID-19 pandemic. Risk factors are discussed in greater detail in Section 13 – "Risk Factors" in the Management's Discussion and Analysis filed on February 25, 2021. 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, except as required by applicable law.

SOURCE Aecon Group Inc.