TORONTO, July 26, 2018 /CNW/ - Aecon Group Inc. (TSX: ARE) today reported strong results for the second quarter of 2018, reflecting the early stages of realizing the benefits of a growth in backlog to a record level of $6.4 billion.

"Aecon's second quarter results illustrate the alignment of Aecon's strengths with the unprecedented market opportunity in Canada today, with record backlog of $6.4 billion at the end of the second quarter representing a 52 per cent increase since the beginning of the year," said John M. Beck, Chief Executive Officer, Aecon Group Inc. "This significant increase in backlog led to strong results in the second quarter and is expected to drive increasing growth in revenue and Adjusted EBITDA in the second half of 2018 and in 2019 as these new projects continue to ramp up during the year. Equally as exciting is the robust pipeline of opportunities still in front of us."

Earlier this week, Aecon was pleased to announce that its Board of Directors has appointed Jean-Louis Servranckx (pronounced Servranx) as the Company's President and Chief Executive Officer, effective September 4, 2018. Upon Mr. Servranckx' assumption of the CEO role, John M. Beck will assume his previous role as Executive Chair of the Board and Brian V. Tobin will resume the Lead Director role.

HIGHLIGHTS

• Revenue of $755 million for the three months ended June 30, 2018, was higher by $69 million, or 10 per cent, compared to the second quarter of 2017.
• Adjusted EBITDA of $41.4 million (margin of 5.5 per cent) for the second quarter of 2018 compared to Adjusted EBITDA of $33.0 million (margin of 4.8 per cent) in the second quarter of 2017.
• Operating profit of $12.8 million was higher by $7.5 million and diluted earnings per share of $0.13 was higher by $0.12 compared to the second quarter of 2017.
• Record backlog as at June 30, 2018 of $6.4 billion compares to backlog of $4.4 billion as at June 30, 2017.
• New contract awards of $2.6 billion were booked in the second quarter of 2018, compared to $687 million in the same period of 2017.
• A joint venture in which Aecon has a 40 per cent share, was awarded a $475 million contract to execute the Unit 6 Fuel Channel and Feeder Replacement (FCFR), at the Bruce Nuclear Generating Station in Kincardine, Ontario, the first of six such units to be refurbished;
• A consortium in which Aecon has a 33.3 per cent interest, finalized a $2.5 billion contract, that includes $1.2 billion of construction costs, for the Finch West Light Rail Transit public-private partnership project in Toronto;
• A partnership in which Aecon has a 24 per cent interest, finalized a $5.0 billion contract for the Réseau express métropolitain Montréal Light Rail Transit project, adding $1.2 billion to Aecon's backlog in the second quarter of 2018; and
• A joint venture in which Aecon has a 50 per cent interest, was awarded a $282 million pipeline construction contract for Spreads 8 and 9 of the Line 3 Replacement Phase 2 project in Manitoba.
• In addition to these multiple new significant awards booked in the quarter, subsequent to quarter end:
• Aecon announced the award of a $248 million contract by the City of Toronto for the F.G. Gardiner Expressway Rehabilitation Project: Section 1 in Toronto.
• An Aecon joint venture was one of four contractors conditionally awarded contracts to construct the proposed Coastal GasLink Pipeline project in British Columbia. Cumulatively, the value of the four conditionally awarded contracts will total $2.8 billion.

OPERATING AND FINANCIAL RESULTS

Revenue for the three months ended June 30, 2018 of $755 million was $69 million, or 10%, higher compared to the second quarter of 2017. The largest increase occurred in the Infrastructure segment ($83 million) from higher revenue in major projects ($72 million) and transportation operations ($11 million). Revenue was also higher in the Concessions segment ($15 million). Partially offsetting these increases was lower revenue in the Industrial segment ($21 million), driven by lower volume in nuclear ($33 million) and conventional industrial operations ($12 million), offset partially by higher revenue in utilities ($24 million). Inter-segment revenue eliminations increased by $8 million primarily due to revenue between the Concessions and Infrastructure segments related to the Bermuda International Airport Redevelopment Project.

Operating profit of $12.8 million in the second quarter of 2018 increased by $7.5 million compared to operating profit of $5.3 million in the same period of 2017, driven by higher gross profit of $7.9 million. The largest gross profit increase occurred in the Infrastructure segment ($9.8 million) due to the impact of higher volume and gross profit margin in both major projects and transportation operations. Gross profit also increased in the Concessions segment ($2.8 million) from increased activity on the Bermuda International Airport Redevelopment Project. Partially offsetting these increases was lower gross profit in the Industrial segment ($4.7 million) resulting primarily from a volume driven decrease in nuclear operations, volume and gross profit margin decreases in conventional industrial operations, and lower gross profit margin in utilities.

Reported backlog as at June 30, 2018 of $6,443 million compares to backlog of $4,365 million a year earlier. This backlog position is a new record level for Aecon, exceeding the previous record of $4,889 million, reported in the second quarter of 2016, by $1,554 million. New contract awards of $2,585 million and $3,494 million were booked in the second quarter and year-to-date in 2018, respectively, compared to $687 million and $1,522 million in the same periods in 2017.

Aecon does not report as backlog the significant number of contracts and arrangements in hand where the exact amount of work to be performed cannot be reliably quantified or where a minimum number of units at the contract specified price per unit is not guaranteed. Examples include time and material and some cost-plus and unit priced contracts where the extent of services to be provided is undefined or where the number of units cannot be estimated with reasonable certainty. Other examples include the value of construction work managed under construction management advisory contracts, concession agreements, multi-year operating and maintenance service contracts where the value of the work is not specified, supplier of choice arrangements and alliance agreements where the client requests services on an as-needed basis. None of the expected revenue from these types of contracts and arrangements is included in backlog. Therefore, Aecon's contractual future work to be performed at any given time is greater than what is reported as backlog.

REPORTING SEGMENTS

Aecon reports its financial performance on the basis of three segments: Infrastructure, Industrial and Concessions.

INFRASTRUCTURE SEGMENT

The Infrastructure segment includes all aspects of the construction of both public and private infrastructure, primarily in Canada, and on a selected basis, internationally. The Infrastructure segment focuses primarily on transportation (roads and bridges, rail and transit, municipal road construction, asphalt production and aggregates, material engineering and design) and major projects (hydroelectric, tunnels and transit stations, foundations, major civil transportation infrastructure, water treatment facilities, mechanical systems and airports) markets.

For the three-month period ended June 30, 2018, revenue in the Infrastructure segment of $320 million was $83 million, or 35%, higher than the same period in 2017. Revenue was higher in major projects ($72 million) primarily due to increased activity on light rail transit ("LRT") projects in Eastern Canada, hydroelectric and waste water projects in Western Canada, and from the Bermuda International Airport Redevelopment Project. Revenue in transportation operations was also higher period-over-period ($11 million) from increased roadbuilding activity in Western Canada.

For the three months ended June 30, 2018, operating profit in the Infrastructure segment of $13.0 million increased by $9.5 million compared to an operating profit of $3.5 million in the second quarter of 2017. Operating profit increased in major projects by $8.7 million driven primarily by higher volume as well as gross profit margin on projects in Eastern Canada. Operating profit also improved in transportation operations by $0.8 million due primarily to higher volume on roadbuilding projects.

Infrastructure backlog as at June 30, 2018 was $3,968 million, compared to $2,034 million a year earlier, an increase of $1,934 million. The largest increase was reported in major projects ($1,794 million) as several significant multi-year projects were awarded in the first six months of 2018 including the Site C Generating Station and Spillways Civil Works ("Site C"), the Réseau express métropolitain Montreal LRT ("Montreal REM"), and the Finch West LRT projects. Backlog in transportation operations also increased ($139 million) primarily related to roadbuilding and foundations projects. New contract awards totaled $1,874 million in the second quarter of 2018 and $2,425 million year-to-date, compared to $160 million and $754 million respectively, in the same periods in 2017.

INDUSTRIAL SEGMENT

As previously disclosed, commencing in 2018, Aecon's previous Energy and Mining segments were combined into a single Industrial segment to align with Aecon's new operating management structure, and to build on the "One Aecon" business strategy to capitalize on and combine the strengths and synergies of the Aecon group. Prior year comparative figures have been restated to conform to the presentation adopted in the current year.

The Industrial segment encompasses a full suite of service offerings, primarily to energy and mining markets, including conventional industrial construction and manufacturing activities such as in-plant construction, site construction, fabrication, module assembly and contract mining. The Industrial segment offers turnkey services consolidating Aecon's industrial and manufacturing capabilities and services across Canada, with a focus on delivering construction services that span the scope of a project's life cycle from site preparation, overburden removal, and resource extraction, to processing and environmental reclamation. The activities of the Industrial segment are concentrated predominantly in Canada and focus primarily on the following sectors: conventional industrial, nuclear and utilities.

Revenue in the Industrial Segment for the second quarter of 2018 of $420 million was $22 million, or 5%, lower than the same period in 2017 with the largest revenue decrease occurring in nuclear operations ($33 million). Revenue was also lower in conventional industrial operations ($12 million) primarily from lower volume of field construction projects in Western Canada. Partially offsetting these decreases was higher in revenue in utilities ($23 million) primarily due to increased activity on gas and electricity distribution projects in Eastern Canada.

For the three months ended June 30, 2018, operating profit of $1.3 million decreased by $6.3 million compared to operating profit of $7.6 million in the second quarter of 2017. Operating profit decreased in nuclear operations by $3.4 million due primarily to lower volume, in conventional industrial operations by $1.5 million from lower volume and gross profit margin, and in utilities by $1.4 million due to lower gross profit margin.

Backlog as at June 30, 2018 of $2,454 million was $137 million higher than the same time last year, driven by increases in nuclear operations ($61 million), conventional industrial operations ($41 million), and utilities ($36 million). New contract awards in the second quarter of 2018 of $695 million, and $1,043 million year-to-date, were $175 million and $285 million higher, respectively, compared to the same periods in 2017.

As discussed in the Consolidated Financial Highlights section, the Industrial segment's contractual future work to be performed at any given time is greater than what is reported as backlog.

CONCESSIONS SEGMENT

The Concessions segment includes the development, financing, design, construction and operation of infrastructure projects by way of build-operate-transfer, build-own-operate-transfer and other public-private partnership contract structures.

Aecon holds a 100% interest in Bermuda Skyport Corporation Limited ("Skyport"), the concessionaire responsible for the Bermuda airport's operations, maintenance and commercial functions, and the entity that will manage and coordinate the overall delivery of the redevelopment project over a 30-year concession term. Aecon's participation in Skyport is consolidated and, as such, is accounted for in the consolidated financial statements by reflecting, line by line, the assets, liabilities, revenue and expenses of Skyport. However, Aecon's participation in the Eglinton Crosstown LRT, Finch West LRT and Waterloo LRT projects are joint ventures that are accounted for using the equity method.

Revenue in the Concessions segment for the second quarter of 2018 of $53 million increased by $15 million when compared to the same period in 2017. The higher revenue was driven primarily by the Bermuda International Airport Redevelopment Project which was awarded late in the first quarter of 2017. Included in Skyport's revenue for the second quarter of 2018 was $30 million of construction revenue that was eliminated on consolidation as inter-segment revenue.

For the three months ended June 30, 2018, operating profit of $8.5 million increased by $4.1 million compared to the same periods in 2017. Higher operating profit resulted primarily from increased activity related to the Bermuda International Airport Redevelopment Project.

Except for Operations and Maintenance ("O&M") activities under contract for the next five years and that can be readily quantified, Aecon does not include in its reported backlog expected revenue from concession agreements. As such, while Aecon expects future revenue from its concession assets, no concession backlog, other than from such O&M activities, is reported.

DIVIDEND

The third quarter 2018 dividend of 12.5 cents per share will be paid on October 1, 2018 to shareholders of record on September 21, 2018.

As previously disclosed in March 2018, Aecon's Board of Directors approved an annual dividend of 50 cents per share.

OUTLOOK

"The overall outlook for revenue and profit growth in 2018 and 2019 is increasingly strong," said John M. Beck. Our current backlog coupled with a robust pipeline of future opportunities is expected to provide an unprecedented platform to further enhance our current strong position and support the goals of continued revenue growth and improving Adjusted EBITDA margin over the longer-term."

CONSOLIDATED RESULTS

The consolidated results for the three months ended June 30, 2018 and 2017 are available at the end of this news release.

BALANCE SHEET HIGHLIGHTS

CONFERENCE CALL

A conference call has been scheduled for Friday, July 27, 2018 at 9:30 a.m. (EST) to discuss Aecon's second quarter 2018 financial results. Participants should dial 416-981-9073 or 1-877-256-8253 at least 10 minutes prior to the conference time. The reservation number is 21892114. For those unable to attend the call, a replay will be available after 12 p.m. on July 27, 2018 at 1-800-558-5253 or 416-626-4100 until midnight on August 3, 2018.

ABOUT AECON

Aecon Group Inc. (TSX: ARE) is a Canadian leader and partner-of-choice in construction and infrastructure development. Aecon provides integrated turnkey services to private and public-sector clients in the Infrastructure and Industrial sectors, and provides project management, financing and development services through its Concessions segment. For more information, please visit aecon.com and follow us on Twitter, LinkedIn, and Instagram at @AeconGroup.

STATEMENT ON FORWARD-LOOKING INFORMATION

The information in this press release includes certain forward-looking statements. Although these forward-looking statements are based on currently available competitive, financial and economic data and operating plans, they are subject to risks and uncertainties. In addition to events beyond Aecon's control, there are factors which could cause actual or future results, performance or achievements to differ materially from those expressed or inferred herein including risks associated with an investment in the common shares of Aecon and the risks related to Aecon's business, including, but not limited to, the timing of projects, unanticipated costs and expenses, general market and industry conditions and operational and reputational risks, including Large Project Risk and Contractual Factors.

Risk factors are discussed in greater detail in the section on "Risk Factors" included in the Company's Annual Information Form dated March 27, 2018, which is available through SEDAR at www.sedar.com. Forward-looking statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, ongoing objectives, strategies and outlook for Aecon. Forward-looking statements may in some cases be identified by words such as "will", "plans", "believes", "expects", "anticipates", "estimates", "projects", "intends", "should" or the negative of these terms, or similar expressions. Other important factors, in addition to those discussed in this document, could affect the future results of Aecon and could cause its results to differ materially from those expressed in any forward-looking statements. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Aecon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE Aecon Group Inc.

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