TSE:ARE Aecon Group Q2 2023 Earnings Report C$18.80 -0.13 (-0.69%) As of 05/30/2025 04:00 PM Eastern ProfileEarnings HistoryForecast Aecon Group EPS ResultsActual EPSC$0.21Consensus EPS C$0.13Beat/MissBeat by +C$0.08One Year Ago EPSN/AAecon Group Revenue ResultsActual Revenue$1.17 billionExpected Revenue$1.15 billionBeat/MissBeat by +$20.06 millionYoY Revenue GrowthN/AAecon Group Announcement DetailsQuarterQ2 2023Date7/26/2023TimeN/AConference Call DateThursday, July 27, 2023Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Aecon Group Q2 2023 Earnings Call TranscriptProvided by QuartrJuly 27, 2023 ShareLink copied to clipboard.There are 12 speakers on the call. Operator00:00:00Good morning. Thank you for attending today's 222023 Aegon Group Incorporated Earnings Call. My name is Lauren, and I will be your moderator for today's call. There will be an opportunity for questions at the end of the presentation. It is now my pleasure To pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Operator00:00:27Mr. Borgatti, please proceed. Speaker 100:00:32Thank you, Lauren. Good morning, everyone, and thanks for participating in our Q2 results conference call. Presenting to you this morning are Jean Louis Servranx, President and CEO and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we've posted a slide presentation on the Investing section of our website, which we'll refer to during this call. Following our comments, we'd be glad to take questions from analysts. Speaker 100:00:57And we ask that the analysts keep to one question before getting back into the queue to ensure others have a chance to contribute. As noted on Slide 2 of the presentation, Listeners are reminded the information we're sharing with you today includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. And although Aecon believes these expectations reflected in these statements are reasonable, we can give no assurance these expectations will prove to be correct. With that, I'll turn the call over to Dave. Speaker 200:01:28Thank you, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment and then address Aecon's financial position before turning the call over to Jean Louis. Turning to Slide 3. Revenue for the Q2 of $1,200,000,000 was $44,000,000 or 4% higher compared to the same period last year and is 8% higher on a year to date basis. Adjusted EBITDA of $17,000,000 a margin of 1.4% compared to $39,000,000 a margin of 3.4% last year And operating profit of $56,000,000 compared to an operating profit of $5,000,000 Diluted earnings per share in the quarter of $0.38 compared to a diluted loss per share of $0.10 in the same period last year. Speaker 200:02:24The improvement in operating profit And diluted earnings per share was largely due to an increase in other income of $70,000,000 Driven primarily by a $38,000,000 gain on the sale of Aecon's Transportation East Business or ATE And a $31,000,000 gain on the sale of certain property and equipment, which more than offset the $53,000,000 negative impact of larger period over period margin adjustments relate to legacy fixed price projects. Reported backlog of $6,900,000,000 at the end of the quarter after removing $447,000,000 of backlog in Q2 related to the sale of ATE compared to backlog of $6,600,000,000 at the end of the Q2 of 2022. New contract awards of $2,000,000,000 were booked in the quarter compared to $1,300,000,000 in the prior period. Now looking at results by segment. Turning to Slide 4. Speaker 200:03:29Construction revenue of $1,100,000,000 in the Q1 was 35,000,000 or 3% higher than the same period last year. Revenue was higher in civil operations driven by an increase in major projects in both Eastern and Western Canada and road building construction work in Western Canada, partially offset by a lower volume of road building construction work in Eastern Canada as a result of the sale of ATE in the quarter. In industrial operations, higher revenue was primarily due to increased activity on mainline pipeline work in Western Canada. And in utilities operations, higher revenue was driven by an increase in telecommunications and high voltage electrical transmission work. Partially offsetting these increases was lower revenue in nuclear operations from a lower volume of refurbishment work And in Urban Transportation Solutions, primarily from a decrease in LRT project work. Speaker 200:04:33New contract awards of $2,000,000,000 in the 2nd quarter compared to $1,300,000,000 in the same period last year. Backlog at the end of the quarter of $6,800,000,000 compared to $6,500,000,000 at the same time last year. Turning to Slide 5. Adjusted EBITDA in the construction segment was negative $4,000,000 with $38,000,000 unfavorable compared to the Q2 of The decrease was driven by negative gross profit of $31,000,000 in the 2nd quarter From a fixed price legacy project in civil operations versus a gross profit of $4,000,000 in the same period last year from the same project And by a negative gross profit of $50,000,000 from 1 of the 4 fixed price legacy projects in urban transportation solutions compared to a negative gross profit of $33,000,000 from one of the other fixed price legacy projects in urban transportation solutions in the same period last year. Other than the impact of these fixed price legacy projects in the quarter, higher gross profit in the balance of the construction segment was primarily driven by improved results in urban transportation solutions. Speaker 200:05:48At June 30, the remaining backlog to be worked off on these Four projects was $699,000,000 compared to $1,100,000,000 at the end of 2022. The 4 legacy projects comprised 13% of consolidated revenue in the 2nd quarter and 10% of backlog at June 30 compared to 16% of consolidated revenue in the full year 2022 and 17% of backlog at December 31. Turning to Slide 6. Concessions revenue for the Q2 was $27,000,000 compared to $19,000,000 in the same period last year, primarily due to an increase in airport operations at the Bermuda International Airport. Bermuda continues to operate at a reduced volume compared to pre pandemic levels, but continue to recover in 2020 to and into the first half of twenty twenty three from the more severe impacts experienced in 20202021. Speaker 200:06:53This recovery was evidenced by the fact that traffic in the 2nd quarter averaged 73% of the pre pandemic level in the Q2 of 2019 compared to average traffic in the Q2 of 2022 being just 43% of the pre pandemic level. Adjusted EBITDA in the Concessions segment of $28,000,000 compared to $17,000,000 in Q2 last year, primarily due to results from the Bermuda Airport and an increase in management and development fees. Turning to Slide 7. At the end of the Q2, Aecon had a committed revolving credit facility of $600,000,000 of which $188,000,000 was drawn And $11,000,000 utilized for letters of credit. On December 31, 2023, convertible debentures with a face value of 100 and $4,000,000 will mature and we expect to repay these debentures at maturity or before. Speaker 200:07:55At this point, I'll turn the call over to Jean Louis. Speaker 300:08:01Thank you, Dave. The significant impact On the 4 large fixed price legacy projects being performed by joint ventures in which Aegon is a participant continue to be felt in our results. Aecon and our partners are working toward resolution and compensation for the impact These projects are faced with the respective project owners focused on reaching fair and reasonable settlement agreements As we move towards project completion in each case. As I've said before, this will take some time, but we are only constantly and making progress. 3 of the 4 projects are currently expected to be substantially complete by date between late 2023 and the middle of 2024 and the 4th is currently expected to be substantially complete during 2025. Speaker 300:08:59Turning to Slide 9. Demand for Aecon's services across Canada continues to be strong. While volatile global and Canadian economic conditions are impacting inflation, interest rates and overall supply chain efficiency. Those factors have stabilized to some extent and have largely been and will continue to be reflected In the pricing and commercial terms of Aegon's recent and prospective project awards and bid. However, results have been negatively impacted by the full legacy projects in recent periods, Undermining positive revenue and profitability trend in the balance of Aegon's business. Speaker 300:09:47Turning to Slide 10. With backlog of $6,900,000,000 at June 30, 2023, And recurring revenue programs continuing to see robust demand. Aecon believes it's positioned To achieve further revenue growth over the next few years. In the Q2, Aecon was awarded a number of projects That were added to backlog, including delivery of the Deerfoot trade improvements project in Alberta. Speaker 200:12:35The Scarborough Subway Extension Project And the Darlington new nuclear project will only be reflected in backlog and the successful conclusion of the lengthy development phases. Aecon, including joint ventures in which we're a participant, is also prequalified on a number of project bids Due to be awarded during the next 12 months and has a considerable pipeline of opportunities to further add to backlog over time. Speaker 300:13:05Coming back, sorry for this. Trailing 12 months recurring revenue of EUR 1,100,000,000 was up 40% versus the prior period and 74% versus 2 years ago. Utilities operations and contributions from the Go expansion on Corridor Works and Scarborough Subway Extension projects During the respective development phases, we are the primary drivers of this growth. Utility operations and further advancement from these projects as we continue through the development phases I expect it to contribute to future growth in recurring revenue. The Concessions Segment is also expected to see airport traffic in Bermuda continue its recovery in 2023 2024. Speaker 300:13:59Turning to Slide 11. Aecon continues to support the energy transition to build and operate sustainable infrastructure. In the Q2, the Oneida Energy Storage Project achieved financial close with Aecon Concessions as an 8.35% equity partner. Earlier this year, Aegon was awarded a $141,000,000 EPC contract by Oneida Limited Partnership To build this 250 Megawatt, 1000 Megawatt Hour advanced stage grid connected battery storage project, We're presenting the largest clean energy storage project in Canada. Projects such as Oneda Energy Storage, Co Expansion on Corridor Works, Scarborough Subway Extension and the Darlington Unuclear Project Demonstrate the path Aegon is on to embrace opportunities linked to decarbonization, Turning to Slide 12. Speaker 300:15:17In addition to large scale energy projects, we continue to And our portfolio with Aecon's green energy services through residential and commercial renewable energy projects. This also includes strategic partnerships with companies to provide electrification and charging infrastructure that enables municipal transit agencies and other corporate fleets to power their vehicles using clean energy. We continue to work towards reducing our own emissions and have been switching our operations Turning to Slide 13. With strong demand, Growing recurring revenue program and diverse backlog in hand, Aecon is focused on achieving solid execution on these projects And selectively adding to backlog through a disciplined bidding approach that supports long term margin improvement in the construction segment. In the Concessions segment, in addition to expecting an ongoing 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. Speaker 300:17:08The growth expansion on Corregor Works project and the Oneida Energy Storage project noted above Examples of the role Aecon's concession segment is playing in developing, operating and maintaining assets related Thank you. We will now turn the call over to analysts for questions. Operator00:17:43Thank Our first question comes from Frederic Bastian from Raymond James. Frederic, please go ahead. Speaker 400:18:12Good morning. Speaker 300:18:15Good morning. Speaker 100:18:16Yes, we all knew there were risks. Speaker 500:18:19Hi. Guys, we all knew there were risks residing in these 4 legacy fixed price projects, but I'm really surprised by the extent of the losses You posted in Q2. So my question is what changed in these, the short 3 months since you last reported to make you take that significant of Speaker 300:18:43Yes, Frederic. I mean, you're right. These legacy projects are a Challenge and the dynamics of the negotiation, especially when we are reaching up to the end of those projects, are extremely complex. Those are not negotiation about one parameter. I mean, we tell our client Due to modification in the condition of execution of our contract, you owe me X And the client answer, in fact, I'm going to compensate for why. Speaker 300:19:18I mean, there's a lot of parameters about The risk taken out about eventual modification to the PA, about the trade off between cash And more long term additional revenue. We also have to deal with different partners on each of the joint venture. We are not alone. We are dealing with different clients, with different decision making process. All this is extremely Complex. Speaker 300:19:53And this explain that the outcome of those negotiation Cannot be perfectly forecasted dollar per dollar. What is sure is that Every day on this whole project, we are negotiating with our clients. And every day, we are progressing Up to the final of those projects, you have probably noticed that the backlog associated with this project now is under €700,000,000 When you compare it, I mean, to our declared backlog, which is 6.9 With our quasi backlog, when you add the 3 progressive design build project, which We'll give us something like €7,000,000,000 to €8,000,000,000 of additional. It has now become A very small portion of our backlog. Speaker 500:21:00That small portion of the backlog, I mean, it's a bit of a black hole. We just don't Where things will land, it's very difficult for us in The Street to figure out what future projections will be. Speaker 300:21:18What is sure is that every day that part, I mean, with this project is a victory because we have Less in our backpack to execute. Operator00:21:44Thank you. Our next question comes from Chris Murray from ADB Capital Markets. Chris, please go ahead. Speaker 600:21:52Yes. Thanks, guys. Good morning. So maybe following on that question, maybe a different way to think about it. What you've been telling us at least for the last few quarters is that you thought you had maybe the re forecast behind you, But we'll be operating at lower margin now. Speaker 600:22:12Like how should we be thinking about margins through the completion of this At this juncture, Jean Louis, I hear what you're saying about the backlogs outside of these projects, but these projects Feel like they're going to be driving your margin profile for the next year or so. So just how should we be thinking about construction margins on a go forward basis? Speaker 200:22:37Yes. So Chris, in terms of legacy projects, the position we take The end of each quarter is based on everything we know at that point in time. And so If those forecasts and everything we've taken into account play out the way we, as a joint venture in each Case envisaged them, then the EBITDA margin effectively from those 4 projects should be 0 on a go forward basis if they're in line with projections. And then your overall EBITDA margins, If you look at our numbers over the for Q2 and over the last 12 months excluding The impact of legacy projects, you can see those margins have been progressing quite nicely. The overall margin profile of the backlog is healthy and improving over time. Speaker 200:23:45We Talked a lot about the fact that we're in a strong demand environment for infrastructure and construction generally, and that's been reflected in not just Building backlog, but also the margin profile of that backlog and you're seeing that in the numbers in the rest of the business. So We expect that trend to continue for the base business. And as I said, the legacy projects in theory should be 0. Speaker 600:24:16Okay. I guess we'll have to look at that. Yes, I guess moving on the Yamiche, I don't know who wants to take this one, but just the Ontario government has been talking a lot and some of the other folks in Ontario about Additional nuclear development and certainly you're well positioned there. I guess a couple of questions. Can you maybe frame The scale of the opportunity that's here and, I guess, as a piece of this, I mean, if everything that everyone's talking about, Additional small nuclear reactors, large reactors, I mean, if that all kind of comes into play, is there a limit to how large Or how much nuclear exposure you folks can actually accommodate? Speaker 300:25:03Yes, I can take this one. Nuclear is a long term industry. It means that you don't decide on Friday that you're going to build a reactor and begin the works on Monday. I mean, The land has to be ready, all the environmental license, I mean, the technological license, the capacity To design, build and operate, everything is a lengthy process. So what we know at the moment is that You've seen that we have booked a little more than €1,000,000,000 I mean of new orders during the quarter for Bruce. Speaker 300:25:43We now have the totality of the 6 reactors under Aegon Execution. At OPG, we still have 2 units to go, Each unit being more or less 3 years of work, but they can interlap just as a signal of Lessons learned and the way we are progressing. You probably noticed that the second unit at OPG, U3, was just delivered and substantially completed by Altium, 169 days ahead of schedule, which Just so the way we master now all this rehabilitation, evidently, There is a decision coming about the refurbishment of 4 units at Pickering. It's probably going to come During the Q3 2023, then there is 1 year to 1.5 years of preparation And early works and then we will begin to work if we are awarded to the job. All this take time. Speaker 300:26:56Regarding the small modular reactor, we have entered in a 6 year alliance with the GI, Apache and SNC for the first one. You probably have noticed the announcement that there will not be 1 but 4th molar modular reactor, the OPG in Ontario. All this will be phased and will take time. So only for this, we are speaking up an horizon Or something like 15 years without even talking about the big units that can be developed at Pru. So we are not Worried about a sort of ceiling in our capacity. Speaker 300:27:40What is more important for us is to be sure that All the teams that we have been training, recruiting, developing are going to stay with us and that they will not be all Within the development of all those, I would say, nuclear program. Speaker 600:28:05Okay. That's helpful. Thank you. Operator00:28:12Thank you. Our next question comes from Benoit Pulria from Desjardins Securities. Speaker 200:28:21Yes. Good morning, everyone. I was wondering if you could provide details about the potential charge to be taken in the second half, the risk behind that on those Four legacy projects given that historically you've been more heavy in the second half and also more granularity about the Potential settlements that you're looking for and maybe the remaining 40% exposure to your backlog to fixed price, The risks behind the I know projects are much smaller in terms of size, but wondering if there's Any risk with respect to the 40% remaining exposure to the backlog? Thanks. So, yes, I mean, if you go back to my Previous answer, in terms of the position on each of these projects at the end of Q2, It factors in everything we know at this point in time. Speaker 200:29:32The write downs in the second quarter Take all of those factors into account and they're all based on forecast through to the end of the job. So With that positioning, the it's not A case of being able to say, okay, now expect this or this. If those forecasts are correct, then The impact on those projects on a go forward basis from a profitability perspective should be 0. Having said that, as we flag now for a fairly lengthy period of time, there will remain risks Until we get to the end of these projects, it's just the nature of the complexity of the situation as Jean Louis described earlier. In terms of the balance of the backlog, as you've seen, the mix of work has been shifting Fairly significantly over the last 12 to 18 months away from fixed price into more non fixed price work. Speaker 200:30:46As you know, there is still backlog in fixed price. We're very comfortable With those projects, we've called out those 4 legacy projects for a reason. But the rest of the Work that we're doing, execution is going well, and it's all reflected in the margins you're seeing over the last Few quarters, which, as I said earlier, we expect that trend to continue in terms of positive margin development. So no, we don't see risk in the rest of the portfolio. Thank you. Operator00:31:34Thank you. Our next question comes from Najee Baidu from Industrial Alliance Securities. Najee, please go ahead. Speaker 700:31:43Hi, good morning. Can you maybe talk a little bit more about what additional Compensation measures that you're pursuing for these fixed price projects, I understand it might take a bit of time and how that might impact the margin outlook for the rest of this year. I think your previous commentary was that margins could potentially be up year over year for 2023. I'm just wondering if that's still Speaker 300:32:11You're speaking about the legacy project. The question is about this. Speaker 800:32:16Correct, yes. Speaker 300:32:18Yes. We are finalizing the execution of 3 of those projects. The 4th one We'll go up to 2025. We are negotiating with our clients. There is no doubt in with all our clients that Those projects have suffered from heavy modification and needs to be compensated. Speaker 300:32:47Now as I have explained, the dynamic of the negotiation are extremely complex, but I can tell you that on 2 of those projects, the amount on the table under negotiation are quite substantially. The issue are all the parameters attached to the additional revenue, And this is where we are still working and we expect some further settlements In the future, in the near future. But they are extremely difficult and complex negotiations. Speaker 700:33:36Okay. And just Maybe if we sort of look at the underlying business ex these projects, can you just maybe confirm what the Revenue and EBITDA would have been on a normalized basis outside of the impact from these projects. Just trying to get a sense of what How the rest Speaker 900:33:59of the construction business is performing? Speaker 300:34:02Yes. I will begin and maybe David will give you a little more information. I mean, As you have noticed, the EBITDA without those legacy products for Q2 would have been 98 €1,000,000 which is extremely strong and trailing 12 months EBITDA without the legacy project would have been €375,000,000 And when you know the revenue we have, it's extremely High in the industry, it's probably one of the best one. It means that we think that our strategy that we have been developing For the last 4 years is the right one about balancing our activity, about strengthening our execution capacity Because the underlying I mean, the normal business, I would say, has never been that strong. In addition, as I've already explained, we have tightened a lot Everything related with the 1st weeks of new projects, as I said, I mean, we have €6,900,000,000 of backlog. Speaker 300:35:16We have €7,000,000,000 of additional quasi backlog associated with our 3 progressive design build Project Encore Scarborough and Small Modular Reactor. It just means we're not starving at all. We are in a very favorable position to choose the project, the client, the partner, the timing that best Sit with our capacity. This is why we are quite optimistic with all these parameters about Aecon, after those legacy projects are definitely behind us. Speaker 200:36:00And Najee, just to add to that, Najee, you also asked about revenue and margin impact To work out the impact on the base business. So as Jean Louis said, the EBITDA impact It was €81,000,000 So excluding those legacy projects, the rest of the business generated €98,000,000 in EBITDA. Revenue attached to those legacy projects in the second quarter was approximately $150,000,000 So if you exclude the legacy projects altogether, then the EBITDA margin On a consolidated basis in the 2nd quarter, would it be 9.6% as opposed to 1.4% reported? Speaker 700:36:51Yes, that's exactly what I was looking for. It seems like there's some very strong organic growth tailwinds and the margin is pretty healthy on a normalized basis. Speaker 900:36:58So I guess you just got to work through Speaker 700:37:03Maybe just one last question for me. So you got the road building Sale completed and the Bermuda minority sale coming up next. Just any updates on use of proceeds and where you expect sort of to end The year in terms of the balance sheet and the leverage profile? Speaker 200:37:23Yes. So as you noted, the transportation sale closed in Q2, we expect the Bermuda sale to close shortly. We've now received all Final approval. So it's just a question of paperwork basically backwards and forwards between lawyers. It should be closed in the next Couple of weeks. Speaker 200:37:45So that will contribute 128,500,000 In terms of U. S. Dollars approximately CAD 170,000,000,000 CAD 175,000,000,000 to the cash position in Q3. Obviously, we have the convertible debenture maturing at the end of the year. The proceeds from those two transactions give us So flexibility in terms of options to deal with those converts. Speaker 200:38:16We'll continue to monitor the market at the same time To decide if we want to do something in terms of a separate issue, but otherwise we'll use the balance sheet to deal with those converts. So I guess in terms of leverage profile at the end of the year, it will depend to some extent Whether we just pay those from existing resources or whether we do any kind of refinancing between now and the end of the year. Speaker 700:38:51Understood. Appreciate it. Thank you. Operator00:38:59Thank you. Our next question comes from Jonathan Lamers from Laurentian Bank Securities. Jonathan, please go ahead. Speaker 1000:39:08Thank you. Jean Louis, just to follow-up on your Earlier answer about settlement compensation payments on these legacy projects, Recognizing that negotiations are complex, do you have visibility today to whether these Might be received later in 2023 or 2024. And David, if they do fall into 2024, would Speaker 600:39:36you expect that to be a Positive free cash Speaker 300:39:41year. I will take the first part of the answer. We are working hard so that part of this negotiation can finalize before the end of the year And part of the payment can be done before the end of the year. It's quite an easy, usually payments are saved. They are not always, I would say, bullet paid. Speaker 300:40:10But all this It's part of the negotiation. So it's difficult to give more precise answer. What is sure is that we negotiate with our clients Every day, and we are pushing to have the right trade off between early payments and Maximizing additional revenue. Speaker 200:40:36And Jonathan, in terms of If those settlements were in 2024, then yes, I would expect 2024 to be a Positive free cash flow year. Obviously, the working capital build attached to those projects has impacted cash flow Over the last 18 to 24 months, but as that unwinds, that will be a contributor to cash flow going forward. Speaker 1000:41:10Okay. I just have one follow-up on that. The unbilled revenue balance has also stepped up quite a bit over the first half versus last year. Do you have any visibility yet to that declining over the coming quarters? Speaker 200:41:28Yes. I mean, some of that is attached to These claims settlements that we're talking about and the 4 legacy projects, and some of it is just attached to Some of the timing of milestones on other projects, as well as just the overall growth In revenue over the last 12 months. So it's a combination. But As we and we'll see some usual seasonality in that number. But as we reach various Settlement agreements and as we hit milestones on some projects that are underway, then yes, that number would we would expect that number to come down over the balance of this year and also into the 1st part of next year. Speaker 1000:42:29Okay. Thanks for your comments. Operator00:42:36Thank you. Our next question comes from Ian Gillies from Stifel. Ian, please go ahead. Speaker 400:42:43Good morning, everyone. With respect to the 4 fixed price legacy contracts moving ahead, are you still seeing much in the way of Change orders or incremental work that will drive more unbilled revenue. And if that's the case, can you maybe just talk a little bit about how you're managing that risk, So you can make sure you recover that revenue? Speaker 300:43:15I would tend to say that we are not expecting additional work or variation order or I mean, it's not the issue anymore. The design of this project is over. The schedule is now stabilized. The issue is just about agreeing on a fair and reasonable compensation And the terms of payment associated with this compensation with our client. But I do not see developing on this whole legacy project Additional work that we should do that we don't know and that would not be recognized. Speaker 300:44:00We all this now is Speaker 400:44:06Okay. That's very helpful. The other item I was curious on, I mean, given some of the uncertainty around future write downs or impairments related to these projects, Is it limiting your ability to go pursue new concession contracts, whether it be in North America or internationally? Or Is that moving or is that unimpeded because it's all project specific? Speaker 200:44:34Yes. I mean, we certainly haven't seen that be an impact. As you know, Some of these large new progressive design build projects that we've been awarded In some cases, we're the same clients we're negotiating with now. And as we Secure work and prequalify on work, we haven't seen any change in the dynamics around our ability to pursue the projects That we think makes sense for us, whether they be in a concessions model or a Progressive Design build model or any other kind of models and Regardless of the client as well. So no, we haven't seen any restrictions on our ability to pursue work. Speaker 400:45:31Okay. Thanks. That's helpful. I'll turn the call. I'll turn it back over. Operator00:45:39Thank you. Our next question comes from Maxim Sytchev, National Bank Financial. Maxim, please go ahead. Speaker 900:45:48Hi, good morning gentlemen. I had a question Maybe in relation to your good morning, Charlie. In terms of your thoughts when it comes to the dividend payout ratio, whether as a Function of net income or free cash flow because I mean leverage likely is probably going to go up. I mean JV cash Sort of stripped out, I mean, spend alone cash is pretty low despite obviously the influx from Bermuda. So I'm just trying to think how you're balancing that risk on a going forward basis, especially some of the difficult projects You don't have some time to run through. Speaker 900:46:30So yes, maybe any update on that front? I think it's just a helpful. Thank you. Speaker 200:46:37Yes. So I mean we expect to see net leverage reduce going forward With the proceeds from Bermuda settlement on claims as they Roll through the numbers and as we generate cash flow in the rest of the business, which as we talked about is performing well. So From that perspective, no concerns with Where we're at in terms of level of dividend payment, we've had a pretty consistent program now over a long period of time, Which has been through various cycles and we try to retain Fairly consistent approach, and there's nothing in our outlook that would cause us to change that philosophy. Speaker 900:47:36And is that stress tested for, again, another potential sort of negative reforecast The projects or again, how you're thinking about it? Like, I mean, I understand sort of the base case scenario, but yes, maybe an incremental thoughts on that. Speaker 200:47:54Yes, of course. I mean, whenever we talk about capital allocation or use of balance sheet For any purpose, we're always looking at a range of scenarios. We're always looking at The various ways things can play out, I mean, it's just it's obviously part of Prudent planning and decision making. So yes, you can assume that Any decisions we make around capital allocation are appropriately stress tested. Speaker 900:48:31Okay. And then maybe just to follow-up on sort of the non cash working capital dynamic. Again, like what is your visibility Maybe for the remainder of the year and in 2024 as sort of the legacy projects are coming to fruition, Maybe any help on that front would be great. Thanks. Speaker 200:48:54Yes. I mean, as Jean Louis talked about earlier, the timing on these It's harder to predict, but we do expect that any settlements reached will be positive To overall working capital, we should see some benefit from A recent settlement in our Q3 working capital position. We'll also have some seasonality in Q3 because it's our Highest revenue quarter that will offset that to some extent. But if we're able to reach additional Settlements through the balance of the year, then I expect some of the working capital build well, not just expect, but some of the working capital build we've seen in the first 6 months of this year will unwind. And then through 2024, the View is that working capital should be a contributor to overall cash flow. Speaker 900:50:06Okay. That's great. And then I think, I mean, almost as what we've just seen from the infrastructure related projects, but any updates on Your pipeline and sort of legacy cable assets, sort of negotiations, that would be helpful. Thank you. Speaker 200:50:26Can you repeat the question, Max? You're just breaking up there. Speaker 900:50:31Sorry, I apologize because I'm in a small discussion obviously around the infrastructure projects. But I was wondering if you can provide any comments, if you can, On the midstream project that you have and the legacy mining K plus S, if there's any updates on the timelines And negotiations with the clients there as well. Thanks. Speaker 200:50:56So I'll talk to K plus S and Jean Louis will take CGL. So in terms of K plus S, No real update. You'll see the language in the disclosure is the same as the prior quarter. We continue to Go through the legal process with various rounds of discovery and We still expect that to end up in court as a hearing in Late 2024 is our best estimate at this point in time. Other than that, no Nothing changed from previous quarters. Speaker 300:51:48Yes. Regarding CGL Maxim, What where are we at the moment? You probably remember, we have 2 spreads. We finalized the first one, spread 4. At Spread 3, we have an agreement with TGL, our client, regarding Cash support to finish this job, we are aiming to finish it around the end of September. Speaker 300:52:20All our I mean, our productivity on-site is doing quite well. We are now running to The last kilometer of this with our client, but also on the discussion and negotiation Ongoing around a certain number of topics. I imagine that if The arbitration is the way that is decided to settle our issues. Then the end of the story is probably going to be between end 2024 2025. But From the moment we reach mechanical completion around the end of September, we may also, if it is The common win of our client and ourselves find a settlement and this could come Much quicker, it means in the first half of twenty twenty four. Speaker 300:53:25At the moment, we are focused on Working as efficiently as we can and preserving our rights and capacity for the ongoing arbitration. Speaker 900:53:40Okay. Super helpful. Thank you very much, Emily. Thank Operator00:53:48you. Our next question comes from Michael Tupholme from TD Securities. Michael, please go ahead. Speaker 800:53:56Thank you. Good morning. Similar to the figures you provided earlier, Dave, on the What the quarter would have looked like had you excluded the impact from the 4 legacy projects. Can you provide that information for Q222, just so we can get a comparison. I don't think we have the revenue impact from last year. Speaker 800:54:18Maybe you can also just clarify that what the EBITDA would have been? Speaker 200:54:24Yes. So Q2 last year in terms of EBITDA was reported at $38,500,000 That was after Adjustments on the 4 legacy projects or impact to the legacy projects of $28,200,000 So effectively Around $66,000,000 $67,000,000 of EBITDA. From a revenue perspective, I think the I'm going from memory here, but I think the impact to those projects was around $200,000,000 We can certainly follow-up on that and provide you the exact number, but it was somewhere in that ballpark. Speaker 800:55:14Okay. That's helpful. Thank you. And then with respect to the revenue contribution from the 4 Legacy fixed price JV projects, the $150,000,000 this quarter, that's a bit higher than the decline in backlog in those projects The decline in backlog quarter over quarter was closer to $100,000,000 I think this was sort of asked earlier and it doesn't sound like you expect The sort of additional revenues over and above what you currently have in backlog, but how do we Sort of understand that the discrepancy there in the Q2, was that all related to one of the projects or was it spread across several? Just trying to get a sense For what happened there in the quarter? Speaker 200:56:00Yes. It's primarily related to The civil project where, as Jean Louis said, there's lots of different parameters around these negotiations. And as we go through various discussions, there's various Items that the client takes off the table in terms of obligations as things the joint venture Agrees to do and that can be things like acceleration of work Or which means adding more people, more shifts over time. Lots of different factors can go into that, which can increase the cost. And therefore, that's what you see With respect to that civil sector project and the margin adjustment in the quarter. Speaker 200:57:04So that generate That effectively goes through that backlog number. Speaker 800:57:13Okay. Got it. And then just lastly for me, the with the Bermuda sale expected to close in a few weeks, I know You've disclosed and then reiterated the sale price, and I think in Canadian dollar It works out to around $170,000,000 Is that a net number that is that how we should think about the net number? Or is there Are there some costs that we need to think about such that the net proceeds would be something lower than that? Speaker 200:57:46Yes. There's nothing in terms of adjustments for debt or cash or anything like that, Just normal transaction type fees primarily. But yes, no Not like ATE where we transferred all our equipment leases and equipment financing as part of the sale and that impact The proceeds is there's nothing of that nature with Peruvian. Speaker 800:58:16Okay. All right. Okay. Thank you. Operator00:58:24Thank you. Our final question comes from Sabahat Khan from RBC Capital Markets. Sabahat, please go ahead. Speaker 1100:58:32Great. Thanks and good morning. I guess when just thinking about those 4 projects, you did talk about the midstream one where you're still in discussions. I guess that seems to be the one based on your kind of commentary where Maybe there hasn't been a settlement or detailed discussions. Is that the one where we should think if there is any further unknown risk gets on that project? Speaker 1100:58:52Or is there any And even when you risk rank those 4 projects, how you think about where there might be more risk versus less? Speaker 200:59:06I mean, I think the positions are set. I mean, I don't think Jean Louis was suggesting there aren't ongoing discussions with Yes. A client on that project there are, I think there's a pretty good working relationship with The client around the focus on completing the project and all the elements that feed into Closing this out successfully. I think we're 100% aligned on that. And as part of that, We talk about commercial issues too. Speaker 200:59:47And as Jean Louis said, this is an arbitration process right now, But it may not end up being resolved through arbitration. It may end up being resolved through discussions and negotiations. So We're as active on that project as we are on any of the others in terms of Risk ranking them, again, if you step back and say, Yes. What do we what do these positions represent at the end of Q2? They represent a best view Every one of these projects, so they're not risk ranked. Speaker 201:00:29Each one of them has a position that we feel is the right Position as a joint venture and as Aegon as part of that joint venture feel that is going to be the final position. Speaker 1101:00:43Okay, great. And then it seems like in the quarter there were some PP and E sold in Q2. As you look ahead, are there any other sort of excess assets that might be disposed of in future quarters or anything that might be up for sale or should keep an eye on? Speaker 201:00:58No. I mean, in terms of those gains on a couple of properties, I mean, that was just a coincidence that They were both in Q2. 1 is in our industrial sector, really a consequence of kind of the pre pandemic So post pandemic world where we decided in the industrial group we needed less office space. We had an office in Bramford, Ontario, an office in Cambridge, Ontario. We consolidated those 2 into one location. Speaker 201:01:31And that freed up a property that we own to be sold. And the other property It's an equipment facility. We historically have been long term leases of that facility. Our landlord was selling the property in 2019. We had a right of first refusal. Speaker 201:01:55We purchased the property in 2019 to be able to Effectively secure the long term home for that equipment division. And then this year, as part of the sale of ATE, which has The large amount of equipment going with that sale, we decided we may not be Long term in that facility anymore. It may be too big for us long term. And so we took the opportunity to sell the property. We will lease for a period of time while we evaluate our options. Speaker 201:02:39But no, I mean, Typically, we're not owners of real estate. We don't aim to tie up capital in owned Buildings and properties, really the only real estate we tend to own is aggregates and things like that. So they were both sales that just made sense based on where we are with Those 2 businesses. Speaker 1101:03:13Okay. And then just one last one. You mentioned the Rest of the business excluding these 4 larger projects and the margin indicated it's sort of in the 9%, 9.5% range. That's obviously quite high relative to the run rate margins over the last little while. I guess what's the implication there that these Four projects maybe have been a bit of a drag and when they end the margins for the overall business are a lot higher or is it just like the rest of the base businesses and seeing Maybe lots of that you might have seen in the past. Speaker 1101:03:43Just trying to get context around that 9 plus percent number. Speaker 201:03:48Yes. No, I mean, Yes. I think you can assume that the 4 legacy projects have been dragging. I mean, even Obviously, this quarter, we've got some larger adjustments. But even in quarters where we haven't had adjustments, they still tended to be Your 0 margin type projects on revenue, so they drag down the overall margin On an ongoing or have been for a period of time now. Speaker 201:04:23As we look at the rest of the business, It's there's nothing in there, as I talked about earlier, that is really concerning us from Margin or a risk profile perspective. So without those 4 legacy projects, we do expect margins to be, Going forward, more representative of where the base business is today. Speaker 301:04:52Maybe I can add some more general thoughts about it. I mean, I Obviously, we do understand the concern about the legacy project. And you can imagine that the management team level of Aecon, The focus we have on finalizing those negotiations, those compensation on the job, but I'm inviting you to have a look Not only to what could have been this quarter, Q2 2023, without the legacy projects, we have discussed Among two, three questions, I mean, a few minutes ago about it, I mean, the €98,000,000 equivalent EBITDA and to compare it with Q2 Not only to look at this quarter, but look at everything we have been implementing during the last 2 to 3 years To realize that we are steadily delivering on everything we say we would do To position Aecon for the future on a much more favorable landscape in terms of Contract model in terms of derisking of client, derisking of modes of payment, Fixed price and variable price in terms of recurring revenue. In terms of markets, I think we have done quite a lot of efforts with our tuck in acquisition, and we will go on with this Regarding also our strength in our team in front of the energy transition, in front of the wave of All of these sustainable projects, it means that when you have a look at the backlog we have and all these efforts, which is why I say, I mean, it's Quite interesting to try to imagine what will be Aecon in the years to come. Speaker 1101:06:56Great. Thanks very much for the color. Operator01:07:04Thank you. That is now the end of the Q and A session. I will now hand back over to Adam Bogassi for closing remarks. Speaker 101:07:13Thank you, Lauren, and appreciate everyone for your time today. Feel free to follow-up as always with any questions and have a great rest of your day.Read morePowered by Key Takeaways In Q2 Aecon delivered $1.2 billion in revenue (up 4% y/y) and reported adjusted EBITDA of $17 million (1.4% margin) versus $39 million last year, driven by one-time gains of $70 million (including a $38 million sale of its Transportation East business) that offset $53 million of legacy fixed-price project losses, producing EPS of $0.38. Construction backlog rose to $6.8 billion with $2 billion of new awards, but segment adjusted EBITDA was negative $4 million due to $81 million of losses on four legacy fixed-price JV projects, which now represent 10% of backlog and are expected to operate at zero margin as three complete by mid-2024 and one by 2025. The Concessions segment posted $27 million in Q2 revenue (versus $19 million) and $28 million EBITDA, underpinned by a rebound at Bermuda International Airport (73% of 2019 traffic) and higher management fees; the Bermuda concession sale is expected to close shortly for approximately CAD 175 million. Aecon maintains strong liquidity with a CAD 600 million revolving credit facility (only CAD 188 million drawn), plans to repay CAD 104 million of convertible debentures in December, and anticipates positive free cash flow in 2024 as legacy project working capital unwinds and transaction proceeds arrive. With a total backlog of $6.9 billion and trailing 12-month recurring revenue up 40%, Aecon is positioned for growth via major awards—including Darlington Nuclear, Scarborough Subway Extension, Deerfoot Trail upgrades and the Oneida Energy Storage project—supporting normalized construction margins near 9.6% ex-legacy projects. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallAecon Group Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckInterim report Aecon Group Earnings HeadlinesWe tried to build, but governments made it difficult to impossible. Here’s how to fix itMay 26, 2025 | theglobeandmail.comWhere I’d Invest $13,000 in the TSX TodayMay 14, 2025 | msn.comTrump wipes out trillions overnight…Is there anybody more powerful than Donald Trump right now? In a single tariff announcement, he wiped out nearly $5 trillion in wealth from the S&P 500 and $6.4 trillion from the Dow Jones… Not to mention the countless trillions of dollars lost in every market around the world… leaving the major political powers scrambling in fear of Trump’s next move.June 2, 2025 | Porter & Company (Ad)The Smartest Industrial Stock to Buy With $3,000 Right NowMay 10, 2025 | msn.comThe Smartest Industrial Stock to Buy With $3,000 Right NowMay 10, 2025 | msn.comAecon Expands Use of ISNetworld® to Support Sustainability Initiatives and Enhance ReportingMay 5, 2025 | finance.yahoo.comSee More Aecon Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Aecon Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Aecon Group and other key companies, straight to your email. Email Address About Aecon GroupAecon Group (TSE:ARE) Inc is a Canada-based company that operates in two segments: Construction and Concessions. The Construction segment includes various aspects of the construction of public and private infrastructure projects, mainly in the transportation sector. Its concessions segment is engaged in the development, financing, construction, and operation of infrastructure projects. Aecon generates the majority of its revenue from the Construction segment.View Aecon Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles e.l.f. Beauty Sees Record Surge After Earnings, Rhode DealCrowdStrike Stock Slips: Analyst Downgrades Before Earnings Bullish NVIDIA Market Set to Surge 50% Ahead of Q1 EarningsAdvance Auto Parts: Did Earnings Defuse Tariff Concerns?Booz Allen Hamilton Earnings: 3 Bullish Signals for BAH StockAdvance Auto Parts Jumps on Surprise Earnings BeatAlibaba's Earnings Just Changed Everything for the Stock Upcoming Earnings CrowdStrike (6/3/2025)Haleon (6/4/2025)Broadcom (6/5/2025)Oracle (6/10/2025)Adobe (6/12/2025)Accenture (6/20/2025)FedEx (6/24/2025)Micron Technology (6/25/2025)Paychex (6/25/2025)NIKE (6/26/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 12 speakers on the call. Operator00:00:00Good morning. Thank you for attending today's 222023 Aegon Group Incorporated Earnings Call. My name is Lauren, and I will be your moderator for today's call. There will be an opportunity for questions at the end of the presentation. It is now my pleasure To pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Operator00:00:27Mr. Borgatti, please proceed. Speaker 100:00:32Thank you, Lauren. Good morning, everyone, and thanks for participating in our Q2 results conference call. Presenting to you this morning are Jean Louis Servranx, President and CEO and David Smales, Executive Vice President and CFO. Our earnings announcement was released yesterday evening, and we've posted a slide presentation on the Investing section of our website, which we'll refer to during this call. Following our comments, we'd be glad to take questions from analysts. Speaker 100:00:57And we ask that the analysts keep to one question before getting back into the queue to ensure others have a chance to contribute. As noted on Slide 2 of the presentation, Listeners are reminded the information we're sharing with you today includes forward looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. And although Aecon believes these expectations reflected in these statements are reasonable, we can give no assurance these expectations will prove to be correct. With that, I'll turn the call over to Dave. Speaker 200:01:28Thank you, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment and then address Aecon's financial position before turning the call over to Jean Louis. Turning to Slide 3. Revenue for the Q2 of $1,200,000,000 was $44,000,000 or 4% higher compared to the same period last year and is 8% higher on a year to date basis. Adjusted EBITDA of $17,000,000 a margin of 1.4% compared to $39,000,000 a margin of 3.4% last year And operating profit of $56,000,000 compared to an operating profit of $5,000,000 Diluted earnings per share in the quarter of $0.38 compared to a diluted loss per share of $0.10 in the same period last year. Speaker 200:02:24The improvement in operating profit And diluted earnings per share was largely due to an increase in other income of $70,000,000 Driven primarily by a $38,000,000 gain on the sale of Aecon's Transportation East Business or ATE And a $31,000,000 gain on the sale of certain property and equipment, which more than offset the $53,000,000 negative impact of larger period over period margin adjustments relate to legacy fixed price projects. Reported backlog of $6,900,000,000 at the end of the quarter after removing $447,000,000 of backlog in Q2 related to the sale of ATE compared to backlog of $6,600,000,000 at the end of the Q2 of 2022. New contract awards of $2,000,000,000 were booked in the quarter compared to $1,300,000,000 in the prior period. Now looking at results by segment. Turning to Slide 4. Speaker 200:03:29Construction revenue of $1,100,000,000 in the Q1 was 35,000,000 or 3% higher than the same period last year. Revenue was higher in civil operations driven by an increase in major projects in both Eastern and Western Canada and road building construction work in Western Canada, partially offset by a lower volume of road building construction work in Eastern Canada as a result of the sale of ATE in the quarter. In industrial operations, higher revenue was primarily due to increased activity on mainline pipeline work in Western Canada. And in utilities operations, higher revenue was driven by an increase in telecommunications and high voltage electrical transmission work. Partially offsetting these increases was lower revenue in nuclear operations from a lower volume of refurbishment work And in Urban Transportation Solutions, primarily from a decrease in LRT project work. Speaker 200:04:33New contract awards of $2,000,000,000 in the 2nd quarter compared to $1,300,000,000 in the same period last year. Backlog at the end of the quarter of $6,800,000,000 compared to $6,500,000,000 at the same time last year. Turning to Slide 5. Adjusted EBITDA in the construction segment was negative $4,000,000 with $38,000,000 unfavorable compared to the Q2 of The decrease was driven by negative gross profit of $31,000,000 in the 2nd quarter From a fixed price legacy project in civil operations versus a gross profit of $4,000,000 in the same period last year from the same project And by a negative gross profit of $50,000,000 from 1 of the 4 fixed price legacy projects in urban transportation solutions compared to a negative gross profit of $33,000,000 from one of the other fixed price legacy projects in urban transportation solutions in the same period last year. Other than the impact of these fixed price legacy projects in the quarter, higher gross profit in the balance of the construction segment was primarily driven by improved results in urban transportation solutions. Speaker 200:05:48At June 30, the remaining backlog to be worked off on these Four projects was $699,000,000 compared to $1,100,000,000 at the end of 2022. The 4 legacy projects comprised 13% of consolidated revenue in the 2nd quarter and 10% of backlog at June 30 compared to 16% of consolidated revenue in the full year 2022 and 17% of backlog at December 31. Turning to Slide 6. Concessions revenue for the Q2 was $27,000,000 compared to $19,000,000 in the same period last year, primarily due to an increase in airport operations at the Bermuda International Airport. Bermuda continues to operate at a reduced volume compared to pre pandemic levels, but continue to recover in 2020 to and into the first half of twenty twenty three from the more severe impacts experienced in 20202021. Speaker 200:06:53This recovery was evidenced by the fact that traffic in the 2nd quarter averaged 73% of the pre pandemic level in the Q2 of 2019 compared to average traffic in the Q2 of 2022 being just 43% of the pre pandemic level. Adjusted EBITDA in the Concessions segment of $28,000,000 compared to $17,000,000 in Q2 last year, primarily due to results from the Bermuda Airport and an increase in management and development fees. Turning to Slide 7. At the end of the Q2, Aecon had a committed revolving credit facility of $600,000,000 of which $188,000,000 was drawn And $11,000,000 utilized for letters of credit. On December 31, 2023, convertible debentures with a face value of 100 and $4,000,000 will mature and we expect to repay these debentures at maturity or before. Speaker 200:07:55At this point, I'll turn the call over to Jean Louis. Speaker 300:08:01Thank you, Dave. The significant impact On the 4 large fixed price legacy projects being performed by joint ventures in which Aegon is a participant continue to be felt in our results. Aecon and our partners are working toward resolution and compensation for the impact These projects are faced with the respective project owners focused on reaching fair and reasonable settlement agreements As we move towards project completion in each case. As I've said before, this will take some time, but we are only constantly and making progress. 3 of the 4 projects are currently expected to be substantially complete by date between late 2023 and the middle of 2024 and the 4th is currently expected to be substantially complete during 2025. Speaker 300:08:59Turning to Slide 9. Demand for Aecon's services across Canada continues to be strong. While volatile global and Canadian economic conditions are impacting inflation, interest rates and overall supply chain efficiency. Those factors have stabilized to some extent and have largely been and will continue to be reflected In the pricing and commercial terms of Aegon's recent and prospective project awards and bid. However, results have been negatively impacted by the full legacy projects in recent periods, Undermining positive revenue and profitability trend in the balance of Aegon's business. Speaker 300:09:47Turning to Slide 10. With backlog of $6,900,000,000 at June 30, 2023, And recurring revenue programs continuing to see robust demand. Aecon believes it's positioned To achieve further revenue growth over the next few years. In the Q2, Aecon was awarded a number of projects That were added to backlog, including delivery of the Deerfoot trade improvements project in Alberta. Speaker 200:12:35The Scarborough Subway Extension Project And the Darlington new nuclear project will only be reflected in backlog and the successful conclusion of the lengthy development phases. Aecon, including joint ventures in which we're a participant, is also prequalified on a number of project bids Due to be awarded during the next 12 months and has a considerable pipeline of opportunities to further add to backlog over time. Speaker 300:13:05Coming back, sorry for this. Trailing 12 months recurring revenue of EUR 1,100,000,000 was up 40% versus the prior period and 74% versus 2 years ago. Utilities operations and contributions from the Go expansion on Corridor Works and Scarborough Subway Extension projects During the respective development phases, we are the primary drivers of this growth. Utility operations and further advancement from these projects as we continue through the development phases I expect it to contribute to future growth in recurring revenue. The Concessions Segment is also expected to see airport traffic in Bermuda continue its recovery in 2023 2024. Speaker 300:13:59Turning to Slide 11. Aecon continues to support the energy transition to build and operate sustainable infrastructure. In the Q2, the Oneida Energy Storage Project achieved financial close with Aecon Concessions as an 8.35% equity partner. Earlier this year, Aegon was awarded a $141,000,000 EPC contract by Oneida Limited Partnership To build this 250 Megawatt, 1000 Megawatt Hour advanced stage grid connected battery storage project, We're presenting the largest clean energy storage project in Canada. Projects such as Oneda Energy Storage, Co Expansion on Corridor Works, Scarborough Subway Extension and the Darlington Unuclear Project Demonstrate the path Aegon is on to embrace opportunities linked to decarbonization, Turning to Slide 12. Speaker 300:15:17In addition to large scale energy projects, we continue to And our portfolio with Aecon's green energy services through residential and commercial renewable energy projects. This also includes strategic partnerships with companies to provide electrification and charging infrastructure that enables municipal transit agencies and other corporate fleets to power their vehicles using clean energy. We continue to work towards reducing our own emissions and have been switching our operations Turning to Slide 13. With strong demand, Growing recurring revenue program and diverse backlog in hand, Aecon is focused on achieving solid execution on these projects And selectively adding to backlog through a disciplined bidding approach that supports long term margin improvement in the construction segment. In the Concessions segment, in addition to expecting an ongoing 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. Speaker 300:17:08The growth expansion on Corregor Works project and the Oneida Energy Storage project noted above Examples of the role Aecon's concession segment is playing in developing, operating and maintaining assets related Thank you. We will now turn the call over to analysts for questions. Operator00:17:43Thank Our first question comes from Frederic Bastian from Raymond James. Frederic, please go ahead. Speaker 400:18:12Good morning. Speaker 300:18:15Good morning. Speaker 100:18:16Yes, we all knew there were risks. Speaker 500:18:19Hi. Guys, we all knew there were risks residing in these 4 legacy fixed price projects, but I'm really surprised by the extent of the losses You posted in Q2. So my question is what changed in these, the short 3 months since you last reported to make you take that significant of Speaker 300:18:43Yes, Frederic. I mean, you're right. These legacy projects are a Challenge and the dynamics of the negotiation, especially when we are reaching up to the end of those projects, are extremely complex. Those are not negotiation about one parameter. I mean, we tell our client Due to modification in the condition of execution of our contract, you owe me X And the client answer, in fact, I'm going to compensate for why. Speaker 300:19:18I mean, there's a lot of parameters about The risk taken out about eventual modification to the PA, about the trade off between cash And more long term additional revenue. We also have to deal with different partners on each of the joint venture. We are not alone. We are dealing with different clients, with different decision making process. All this is extremely Complex. Speaker 300:19:53And this explain that the outcome of those negotiation Cannot be perfectly forecasted dollar per dollar. What is sure is that Every day on this whole project, we are negotiating with our clients. And every day, we are progressing Up to the final of those projects, you have probably noticed that the backlog associated with this project now is under €700,000,000 When you compare it, I mean, to our declared backlog, which is 6.9 With our quasi backlog, when you add the 3 progressive design build project, which We'll give us something like €7,000,000,000 to €8,000,000,000 of additional. It has now become A very small portion of our backlog. Speaker 500:21:00That small portion of the backlog, I mean, it's a bit of a black hole. We just don't Where things will land, it's very difficult for us in The Street to figure out what future projections will be. Speaker 300:21:18What is sure is that every day that part, I mean, with this project is a victory because we have Less in our backpack to execute. Operator00:21:44Thank you. Our next question comes from Chris Murray from ADB Capital Markets. Chris, please go ahead. Speaker 600:21:52Yes. Thanks, guys. Good morning. So maybe following on that question, maybe a different way to think about it. What you've been telling us at least for the last few quarters is that you thought you had maybe the re forecast behind you, But we'll be operating at lower margin now. Speaker 600:22:12Like how should we be thinking about margins through the completion of this At this juncture, Jean Louis, I hear what you're saying about the backlogs outside of these projects, but these projects Feel like they're going to be driving your margin profile for the next year or so. So just how should we be thinking about construction margins on a go forward basis? Speaker 200:22:37Yes. So Chris, in terms of legacy projects, the position we take The end of each quarter is based on everything we know at that point in time. And so If those forecasts and everything we've taken into account play out the way we, as a joint venture in each Case envisaged them, then the EBITDA margin effectively from those 4 projects should be 0 on a go forward basis if they're in line with projections. And then your overall EBITDA margins, If you look at our numbers over the for Q2 and over the last 12 months excluding The impact of legacy projects, you can see those margins have been progressing quite nicely. The overall margin profile of the backlog is healthy and improving over time. Speaker 200:23:45We Talked a lot about the fact that we're in a strong demand environment for infrastructure and construction generally, and that's been reflected in not just Building backlog, but also the margin profile of that backlog and you're seeing that in the numbers in the rest of the business. So We expect that trend to continue for the base business. And as I said, the legacy projects in theory should be 0. Speaker 600:24:16Okay. I guess we'll have to look at that. Yes, I guess moving on the Yamiche, I don't know who wants to take this one, but just the Ontario government has been talking a lot and some of the other folks in Ontario about Additional nuclear development and certainly you're well positioned there. I guess a couple of questions. Can you maybe frame The scale of the opportunity that's here and, I guess, as a piece of this, I mean, if everything that everyone's talking about, Additional small nuclear reactors, large reactors, I mean, if that all kind of comes into play, is there a limit to how large Or how much nuclear exposure you folks can actually accommodate? Speaker 300:25:03Yes, I can take this one. Nuclear is a long term industry. It means that you don't decide on Friday that you're going to build a reactor and begin the works on Monday. I mean, The land has to be ready, all the environmental license, I mean, the technological license, the capacity To design, build and operate, everything is a lengthy process. So what we know at the moment is that You've seen that we have booked a little more than €1,000,000,000 I mean of new orders during the quarter for Bruce. Speaker 300:25:43We now have the totality of the 6 reactors under Aegon Execution. At OPG, we still have 2 units to go, Each unit being more or less 3 years of work, but they can interlap just as a signal of Lessons learned and the way we are progressing. You probably noticed that the second unit at OPG, U3, was just delivered and substantially completed by Altium, 169 days ahead of schedule, which Just so the way we master now all this rehabilitation, evidently, There is a decision coming about the refurbishment of 4 units at Pickering. It's probably going to come During the Q3 2023, then there is 1 year to 1.5 years of preparation And early works and then we will begin to work if we are awarded to the job. All this take time. Speaker 300:26:56Regarding the small modular reactor, we have entered in a 6 year alliance with the GI, Apache and SNC for the first one. You probably have noticed the announcement that there will not be 1 but 4th molar modular reactor, the OPG in Ontario. All this will be phased and will take time. So only for this, we are speaking up an horizon Or something like 15 years without even talking about the big units that can be developed at Pru. So we are not Worried about a sort of ceiling in our capacity. Speaker 300:27:40What is more important for us is to be sure that All the teams that we have been training, recruiting, developing are going to stay with us and that they will not be all Within the development of all those, I would say, nuclear program. Speaker 600:28:05Okay. That's helpful. Thank you. Operator00:28:12Thank you. Our next question comes from Benoit Pulria from Desjardins Securities. Speaker 200:28:21Yes. Good morning, everyone. I was wondering if you could provide details about the potential charge to be taken in the second half, the risk behind that on those Four legacy projects given that historically you've been more heavy in the second half and also more granularity about the Potential settlements that you're looking for and maybe the remaining 40% exposure to your backlog to fixed price, The risks behind the I know projects are much smaller in terms of size, but wondering if there's Any risk with respect to the 40% remaining exposure to the backlog? Thanks. So, yes, I mean, if you go back to my Previous answer, in terms of the position on each of these projects at the end of Q2, It factors in everything we know at this point in time. Speaker 200:29:32The write downs in the second quarter Take all of those factors into account and they're all based on forecast through to the end of the job. So With that positioning, the it's not A case of being able to say, okay, now expect this or this. If those forecasts are correct, then The impact on those projects on a go forward basis from a profitability perspective should be 0. Having said that, as we flag now for a fairly lengthy period of time, there will remain risks Until we get to the end of these projects, it's just the nature of the complexity of the situation as Jean Louis described earlier. In terms of the balance of the backlog, as you've seen, the mix of work has been shifting Fairly significantly over the last 12 to 18 months away from fixed price into more non fixed price work. Speaker 200:30:46As you know, there is still backlog in fixed price. We're very comfortable With those projects, we've called out those 4 legacy projects for a reason. But the rest of the Work that we're doing, execution is going well, and it's all reflected in the margins you're seeing over the last Few quarters, which, as I said earlier, we expect that trend to continue in terms of positive margin development. So no, we don't see risk in the rest of the portfolio. Thank you. Operator00:31:34Thank you. Our next question comes from Najee Baidu from Industrial Alliance Securities. Najee, please go ahead. Speaker 700:31:43Hi, good morning. Can you maybe talk a little bit more about what additional Compensation measures that you're pursuing for these fixed price projects, I understand it might take a bit of time and how that might impact the margin outlook for the rest of this year. I think your previous commentary was that margins could potentially be up year over year for 2023. I'm just wondering if that's still Speaker 300:32:11You're speaking about the legacy project. The question is about this. Speaker 800:32:16Correct, yes. Speaker 300:32:18Yes. We are finalizing the execution of 3 of those projects. The 4th one We'll go up to 2025. We are negotiating with our clients. There is no doubt in with all our clients that Those projects have suffered from heavy modification and needs to be compensated. Speaker 300:32:47Now as I have explained, the dynamic of the negotiation are extremely complex, but I can tell you that on 2 of those projects, the amount on the table under negotiation are quite substantially. The issue are all the parameters attached to the additional revenue, And this is where we are still working and we expect some further settlements In the future, in the near future. But they are extremely difficult and complex negotiations. Speaker 700:33:36Okay. And just Maybe if we sort of look at the underlying business ex these projects, can you just maybe confirm what the Revenue and EBITDA would have been on a normalized basis outside of the impact from these projects. Just trying to get a sense of what How the rest Speaker 900:33:59of the construction business is performing? Speaker 300:34:02Yes. I will begin and maybe David will give you a little more information. I mean, As you have noticed, the EBITDA without those legacy products for Q2 would have been 98 €1,000,000 which is extremely strong and trailing 12 months EBITDA without the legacy project would have been €375,000,000 And when you know the revenue we have, it's extremely High in the industry, it's probably one of the best one. It means that we think that our strategy that we have been developing For the last 4 years is the right one about balancing our activity, about strengthening our execution capacity Because the underlying I mean, the normal business, I would say, has never been that strong. In addition, as I've already explained, we have tightened a lot Everything related with the 1st weeks of new projects, as I said, I mean, we have €6,900,000,000 of backlog. Speaker 300:35:16We have €7,000,000,000 of additional quasi backlog associated with our 3 progressive design build Project Encore Scarborough and Small Modular Reactor. It just means we're not starving at all. We are in a very favorable position to choose the project, the client, the partner, the timing that best Sit with our capacity. This is why we are quite optimistic with all these parameters about Aecon, after those legacy projects are definitely behind us. Speaker 200:36:00And Najee, just to add to that, Najee, you also asked about revenue and margin impact To work out the impact on the base business. So as Jean Louis said, the EBITDA impact It was €81,000,000 So excluding those legacy projects, the rest of the business generated €98,000,000 in EBITDA. Revenue attached to those legacy projects in the second quarter was approximately $150,000,000 So if you exclude the legacy projects altogether, then the EBITDA margin On a consolidated basis in the 2nd quarter, would it be 9.6% as opposed to 1.4% reported? Speaker 700:36:51Yes, that's exactly what I was looking for. It seems like there's some very strong organic growth tailwinds and the margin is pretty healthy on a normalized basis. Speaker 900:36:58So I guess you just got to work through Speaker 700:37:03Maybe just one last question for me. So you got the road building Sale completed and the Bermuda minority sale coming up next. Just any updates on use of proceeds and where you expect sort of to end The year in terms of the balance sheet and the leverage profile? Speaker 200:37:23Yes. So as you noted, the transportation sale closed in Q2, we expect the Bermuda sale to close shortly. We've now received all Final approval. So it's just a question of paperwork basically backwards and forwards between lawyers. It should be closed in the next Couple of weeks. Speaker 200:37:45So that will contribute 128,500,000 In terms of U. S. Dollars approximately CAD 170,000,000,000 CAD 175,000,000,000 to the cash position in Q3. Obviously, we have the convertible debenture maturing at the end of the year. The proceeds from those two transactions give us So flexibility in terms of options to deal with those converts. Speaker 200:38:16We'll continue to monitor the market at the same time To decide if we want to do something in terms of a separate issue, but otherwise we'll use the balance sheet to deal with those converts. So I guess in terms of leverage profile at the end of the year, it will depend to some extent Whether we just pay those from existing resources or whether we do any kind of refinancing between now and the end of the year. Speaker 700:38:51Understood. Appreciate it. Thank you. Operator00:38:59Thank you. Our next question comes from Jonathan Lamers from Laurentian Bank Securities. Jonathan, please go ahead. Speaker 1000:39:08Thank you. Jean Louis, just to follow-up on your Earlier answer about settlement compensation payments on these legacy projects, Recognizing that negotiations are complex, do you have visibility today to whether these Might be received later in 2023 or 2024. And David, if they do fall into 2024, would Speaker 600:39:36you expect that to be a Positive free cash Speaker 300:39:41year. I will take the first part of the answer. We are working hard so that part of this negotiation can finalize before the end of the year And part of the payment can be done before the end of the year. It's quite an easy, usually payments are saved. They are not always, I would say, bullet paid. Speaker 300:40:10But all this It's part of the negotiation. So it's difficult to give more precise answer. What is sure is that we negotiate with our clients Every day, and we are pushing to have the right trade off between early payments and Maximizing additional revenue. Speaker 200:40:36And Jonathan, in terms of If those settlements were in 2024, then yes, I would expect 2024 to be a Positive free cash flow year. Obviously, the working capital build attached to those projects has impacted cash flow Over the last 18 to 24 months, but as that unwinds, that will be a contributor to cash flow going forward. Speaker 1000:41:10Okay. I just have one follow-up on that. The unbilled revenue balance has also stepped up quite a bit over the first half versus last year. Do you have any visibility yet to that declining over the coming quarters? Speaker 200:41:28Yes. I mean, some of that is attached to These claims settlements that we're talking about and the 4 legacy projects, and some of it is just attached to Some of the timing of milestones on other projects, as well as just the overall growth In revenue over the last 12 months. So it's a combination. But As we and we'll see some usual seasonality in that number. But as we reach various Settlement agreements and as we hit milestones on some projects that are underway, then yes, that number would we would expect that number to come down over the balance of this year and also into the 1st part of next year. Speaker 1000:42:29Okay. Thanks for your comments. Operator00:42:36Thank you. Our next question comes from Ian Gillies from Stifel. Ian, please go ahead. Speaker 400:42:43Good morning, everyone. With respect to the 4 fixed price legacy contracts moving ahead, are you still seeing much in the way of Change orders or incremental work that will drive more unbilled revenue. And if that's the case, can you maybe just talk a little bit about how you're managing that risk, So you can make sure you recover that revenue? Speaker 300:43:15I would tend to say that we are not expecting additional work or variation order or I mean, it's not the issue anymore. The design of this project is over. The schedule is now stabilized. The issue is just about agreeing on a fair and reasonable compensation And the terms of payment associated with this compensation with our client. But I do not see developing on this whole legacy project Additional work that we should do that we don't know and that would not be recognized. Speaker 300:44:00We all this now is Speaker 400:44:06Okay. That's very helpful. The other item I was curious on, I mean, given some of the uncertainty around future write downs or impairments related to these projects, Is it limiting your ability to go pursue new concession contracts, whether it be in North America or internationally? Or Is that moving or is that unimpeded because it's all project specific? Speaker 200:44:34Yes. I mean, we certainly haven't seen that be an impact. As you know, Some of these large new progressive design build projects that we've been awarded In some cases, we're the same clients we're negotiating with now. And as we Secure work and prequalify on work, we haven't seen any change in the dynamics around our ability to pursue the projects That we think makes sense for us, whether they be in a concessions model or a Progressive Design build model or any other kind of models and Regardless of the client as well. So no, we haven't seen any restrictions on our ability to pursue work. Speaker 400:45:31Okay. Thanks. That's helpful. I'll turn the call. I'll turn it back over. Operator00:45:39Thank you. Our next question comes from Maxim Sytchev, National Bank Financial. Maxim, please go ahead. Speaker 900:45:48Hi, good morning gentlemen. I had a question Maybe in relation to your good morning, Charlie. In terms of your thoughts when it comes to the dividend payout ratio, whether as a Function of net income or free cash flow because I mean leverage likely is probably going to go up. I mean JV cash Sort of stripped out, I mean, spend alone cash is pretty low despite obviously the influx from Bermuda. So I'm just trying to think how you're balancing that risk on a going forward basis, especially some of the difficult projects You don't have some time to run through. Speaker 900:46:30So yes, maybe any update on that front? I think it's just a helpful. Thank you. Speaker 200:46:37Yes. So I mean we expect to see net leverage reduce going forward With the proceeds from Bermuda settlement on claims as they Roll through the numbers and as we generate cash flow in the rest of the business, which as we talked about is performing well. So From that perspective, no concerns with Where we're at in terms of level of dividend payment, we've had a pretty consistent program now over a long period of time, Which has been through various cycles and we try to retain Fairly consistent approach, and there's nothing in our outlook that would cause us to change that philosophy. Speaker 900:47:36And is that stress tested for, again, another potential sort of negative reforecast The projects or again, how you're thinking about it? Like, I mean, I understand sort of the base case scenario, but yes, maybe an incremental thoughts on that. Speaker 200:47:54Yes, of course. I mean, whenever we talk about capital allocation or use of balance sheet For any purpose, we're always looking at a range of scenarios. We're always looking at The various ways things can play out, I mean, it's just it's obviously part of Prudent planning and decision making. So yes, you can assume that Any decisions we make around capital allocation are appropriately stress tested. Speaker 900:48:31Okay. And then maybe just to follow-up on sort of the non cash working capital dynamic. Again, like what is your visibility Maybe for the remainder of the year and in 2024 as sort of the legacy projects are coming to fruition, Maybe any help on that front would be great. Thanks. Speaker 200:48:54Yes. I mean, as Jean Louis talked about earlier, the timing on these It's harder to predict, but we do expect that any settlements reached will be positive To overall working capital, we should see some benefit from A recent settlement in our Q3 working capital position. We'll also have some seasonality in Q3 because it's our Highest revenue quarter that will offset that to some extent. But if we're able to reach additional Settlements through the balance of the year, then I expect some of the working capital build well, not just expect, but some of the working capital build we've seen in the first 6 months of this year will unwind. And then through 2024, the View is that working capital should be a contributor to overall cash flow. Speaker 900:50:06Okay. That's great. And then I think, I mean, almost as what we've just seen from the infrastructure related projects, but any updates on Your pipeline and sort of legacy cable assets, sort of negotiations, that would be helpful. Thank you. Speaker 200:50:26Can you repeat the question, Max? You're just breaking up there. Speaker 900:50:31Sorry, I apologize because I'm in a small discussion obviously around the infrastructure projects. But I was wondering if you can provide any comments, if you can, On the midstream project that you have and the legacy mining K plus S, if there's any updates on the timelines And negotiations with the clients there as well. Thanks. Speaker 200:50:56So I'll talk to K plus S and Jean Louis will take CGL. So in terms of K plus S, No real update. You'll see the language in the disclosure is the same as the prior quarter. We continue to Go through the legal process with various rounds of discovery and We still expect that to end up in court as a hearing in Late 2024 is our best estimate at this point in time. Other than that, no Nothing changed from previous quarters. Speaker 300:51:48Yes. Regarding CGL Maxim, What where are we at the moment? You probably remember, we have 2 spreads. We finalized the first one, spread 4. At Spread 3, we have an agreement with TGL, our client, regarding Cash support to finish this job, we are aiming to finish it around the end of September. Speaker 300:52:20All our I mean, our productivity on-site is doing quite well. We are now running to The last kilometer of this with our client, but also on the discussion and negotiation Ongoing around a certain number of topics. I imagine that if The arbitration is the way that is decided to settle our issues. Then the end of the story is probably going to be between end 2024 2025. But From the moment we reach mechanical completion around the end of September, we may also, if it is The common win of our client and ourselves find a settlement and this could come Much quicker, it means in the first half of twenty twenty four. Speaker 300:53:25At the moment, we are focused on Working as efficiently as we can and preserving our rights and capacity for the ongoing arbitration. Speaker 900:53:40Okay. Super helpful. Thank you very much, Emily. Thank Operator00:53:48you. Our next question comes from Michael Tupholme from TD Securities. Michael, please go ahead. Speaker 800:53:56Thank you. Good morning. Similar to the figures you provided earlier, Dave, on the What the quarter would have looked like had you excluded the impact from the 4 legacy projects. Can you provide that information for Q222, just so we can get a comparison. I don't think we have the revenue impact from last year. Speaker 800:54:18Maybe you can also just clarify that what the EBITDA would have been? Speaker 200:54:24Yes. So Q2 last year in terms of EBITDA was reported at $38,500,000 That was after Adjustments on the 4 legacy projects or impact to the legacy projects of $28,200,000 So effectively Around $66,000,000 $67,000,000 of EBITDA. From a revenue perspective, I think the I'm going from memory here, but I think the impact to those projects was around $200,000,000 We can certainly follow-up on that and provide you the exact number, but it was somewhere in that ballpark. Speaker 800:55:14Okay. That's helpful. Thank you. And then with respect to the revenue contribution from the 4 Legacy fixed price JV projects, the $150,000,000 this quarter, that's a bit higher than the decline in backlog in those projects The decline in backlog quarter over quarter was closer to $100,000,000 I think this was sort of asked earlier and it doesn't sound like you expect The sort of additional revenues over and above what you currently have in backlog, but how do we Sort of understand that the discrepancy there in the Q2, was that all related to one of the projects or was it spread across several? Just trying to get a sense For what happened there in the quarter? Speaker 200:56:00Yes. It's primarily related to The civil project where, as Jean Louis said, there's lots of different parameters around these negotiations. And as we go through various discussions, there's various Items that the client takes off the table in terms of obligations as things the joint venture Agrees to do and that can be things like acceleration of work Or which means adding more people, more shifts over time. Lots of different factors can go into that, which can increase the cost. And therefore, that's what you see With respect to that civil sector project and the margin adjustment in the quarter. Speaker 200:57:04So that generate That effectively goes through that backlog number. Speaker 800:57:13Okay. Got it. And then just lastly for me, the with the Bermuda sale expected to close in a few weeks, I know You've disclosed and then reiterated the sale price, and I think in Canadian dollar It works out to around $170,000,000 Is that a net number that is that how we should think about the net number? Or is there Are there some costs that we need to think about such that the net proceeds would be something lower than that? Speaker 200:57:46Yes. There's nothing in terms of adjustments for debt or cash or anything like that, Just normal transaction type fees primarily. But yes, no Not like ATE where we transferred all our equipment leases and equipment financing as part of the sale and that impact The proceeds is there's nothing of that nature with Peruvian. Speaker 800:58:16Okay. All right. Okay. Thank you. Operator00:58:24Thank you. Our final question comes from Sabahat Khan from RBC Capital Markets. Sabahat, please go ahead. Speaker 1100:58:32Great. Thanks and good morning. I guess when just thinking about those 4 projects, you did talk about the midstream one where you're still in discussions. I guess that seems to be the one based on your kind of commentary where Maybe there hasn't been a settlement or detailed discussions. Is that the one where we should think if there is any further unknown risk gets on that project? Speaker 1100:58:52Or is there any And even when you risk rank those 4 projects, how you think about where there might be more risk versus less? Speaker 200:59:06I mean, I think the positions are set. I mean, I don't think Jean Louis was suggesting there aren't ongoing discussions with Yes. A client on that project there are, I think there's a pretty good working relationship with The client around the focus on completing the project and all the elements that feed into Closing this out successfully. I think we're 100% aligned on that. And as part of that, We talk about commercial issues too. Speaker 200:59:47And as Jean Louis said, this is an arbitration process right now, But it may not end up being resolved through arbitration. It may end up being resolved through discussions and negotiations. So We're as active on that project as we are on any of the others in terms of Risk ranking them, again, if you step back and say, Yes. What do we what do these positions represent at the end of Q2? They represent a best view Every one of these projects, so they're not risk ranked. Speaker 201:00:29Each one of them has a position that we feel is the right Position as a joint venture and as Aegon as part of that joint venture feel that is going to be the final position. Speaker 1101:00:43Okay, great. And then it seems like in the quarter there were some PP and E sold in Q2. As you look ahead, are there any other sort of excess assets that might be disposed of in future quarters or anything that might be up for sale or should keep an eye on? Speaker 201:00:58No. I mean, in terms of those gains on a couple of properties, I mean, that was just a coincidence that They were both in Q2. 1 is in our industrial sector, really a consequence of kind of the pre pandemic So post pandemic world where we decided in the industrial group we needed less office space. We had an office in Bramford, Ontario, an office in Cambridge, Ontario. We consolidated those 2 into one location. Speaker 201:01:31And that freed up a property that we own to be sold. And the other property It's an equipment facility. We historically have been long term leases of that facility. Our landlord was selling the property in 2019. We had a right of first refusal. Speaker 201:01:55We purchased the property in 2019 to be able to Effectively secure the long term home for that equipment division. And then this year, as part of the sale of ATE, which has The large amount of equipment going with that sale, we decided we may not be Long term in that facility anymore. It may be too big for us long term. And so we took the opportunity to sell the property. We will lease for a period of time while we evaluate our options. Speaker 201:02:39But no, I mean, Typically, we're not owners of real estate. We don't aim to tie up capital in owned Buildings and properties, really the only real estate we tend to own is aggregates and things like that. So they were both sales that just made sense based on where we are with Those 2 businesses. Speaker 1101:03:13Okay. And then just one last one. You mentioned the Rest of the business excluding these 4 larger projects and the margin indicated it's sort of in the 9%, 9.5% range. That's obviously quite high relative to the run rate margins over the last little while. I guess what's the implication there that these Four projects maybe have been a bit of a drag and when they end the margins for the overall business are a lot higher or is it just like the rest of the base businesses and seeing Maybe lots of that you might have seen in the past. Speaker 1101:03:43Just trying to get context around that 9 plus percent number. Speaker 201:03:48Yes. No, I mean, Yes. I think you can assume that the 4 legacy projects have been dragging. I mean, even Obviously, this quarter, we've got some larger adjustments. But even in quarters where we haven't had adjustments, they still tended to be Your 0 margin type projects on revenue, so they drag down the overall margin On an ongoing or have been for a period of time now. Speaker 201:04:23As we look at the rest of the business, It's there's nothing in there, as I talked about earlier, that is really concerning us from Margin or a risk profile perspective. So without those 4 legacy projects, we do expect margins to be, Going forward, more representative of where the base business is today. Speaker 301:04:52Maybe I can add some more general thoughts about it. I mean, I Obviously, we do understand the concern about the legacy project. And you can imagine that the management team level of Aecon, The focus we have on finalizing those negotiations, those compensation on the job, but I'm inviting you to have a look Not only to what could have been this quarter, Q2 2023, without the legacy projects, we have discussed Among two, three questions, I mean, a few minutes ago about it, I mean, the €98,000,000 equivalent EBITDA and to compare it with Q2 Not only to look at this quarter, but look at everything we have been implementing during the last 2 to 3 years To realize that we are steadily delivering on everything we say we would do To position Aecon for the future on a much more favorable landscape in terms of Contract model in terms of derisking of client, derisking of modes of payment, Fixed price and variable price in terms of recurring revenue. In terms of markets, I think we have done quite a lot of efforts with our tuck in acquisition, and we will go on with this Regarding also our strength in our team in front of the energy transition, in front of the wave of All of these sustainable projects, it means that when you have a look at the backlog we have and all these efforts, which is why I say, I mean, it's Quite interesting to try to imagine what will be Aecon in the years to come. Speaker 1101:06:56Great. Thanks very much for the color. Operator01:07:04Thank you. That is now the end of the Q and A session. I will now hand back over to Adam Bogassi for closing remarks. Speaker 101:07:13Thank you, Lauren, and appreciate everyone for your time today. Feel free to follow-up as always with any questions and have a great rest of your day.Read morePowered by