Q2 2023 Aecon Group Inc Earnings Call
Okay.
Good morning. Thank you for attending today's to teach by each one three Aegon group incorporated earnings call My.
My name is Lauren and I'll be your multi rate for today's call.
That'd be the opportunity for questions at the end of the presentation.
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It is now more purchase parts of the country. It takes to the highest ethical got Qi senior Vice President of corporate development Investor Relations you still got two please proceed.
Thank you Lauren good morning, everyone and thanks for participating in our second quarter results Conference call.
Presenting to you. This morning are John Louise start rocks, President and CEO , and David Smith, Executive Vice President and CFO .
Our earnings announcement was released yesterday evening, and we posted a slide presentation on the investing section of our website, which we'll refer to during this call.
Following their comments, we'd be glad to take questions from analysts and we asked at the analyst keep to one question before getting back into the queue to ensure others have a chance to contribute.
As noted on slide two 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 other way Couldnt believes these expectations reflected in these statements are reasonable we can give no assurance that these expectations will prove to be correct with that.
I'll turn the call over to Dave.
Okay.
Thank you Adam and good morning, everyone.
I'll touch briefly on <unk> consolidated results review results by segment, and then negotiate financial position before turning the call a little bit too John Louie.
Turning to slide three.
Revenue for the second quarter of $1 $2 billion was 44 million or 4% higher compared to the same periods last year.
Is 8% higher on a year to date basis.
Adjusted EBITDA was $17 million and margin of one 4% compared to 39 million a margin of three 4% last year.
Operating profit of $56 million compared to an operating profit of $5 million.
Diluted earnings per share in the quarter of 38 cents compared to a diluted loss per share <unk> 10 cents in the same period last year.
The improvement in operating profit and diluted earnings per share.
Largely due to an increase in other income of $70 million, driven primarily by a $38 million gain on the sale of vehicles transportation east business or <unk>.
And if it's $1 million gain on the sale of certain property and equipment, which more than offset the $53 million negative impact of a larger period over period margin adjustments relate to legacy fixed price projects.
Reported backlog at $6 9 billion at the end of the quarter.
After removing $447 million of backlog in Q2.
Two the sale of H E.
Compared to backlog of $6 6 billion at the end of the second quarter of 2022.
New contract awards of $2 billion were booked in the quarter compared to $1 3 billion in the prior period.
Now looking at results by segment turning to slide four construction revenue of $1 1 billion in the first quarter was $35 million 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 <unk> in the quarter.
And 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 and nuclear operations from a lower volume of refurbishment work and he never been transportation solutions, primarily from a decrease in L. T project work.
New contract awards of $2 billion in the second quarter compared to $1 3 billion in the same period last year.
Backlog at the end of the quarter of $6 8 billion compared to $6 5 billion at the same time last year.
Turning to slide five adjusted EBITDA in the construction segment is negative 4 billion with 38 million unfavorable compared to the second quarter of last year.
The decrease was driven by negative gross profit of $31 million in the second quarter from a fixed price legacy project and civil operations.
It is a gross profit of 4 million in the same period last year from the same project.
And by a negative gross profit of $50 million from one of the four fixed price legacy projects. You know had been transportation solutions compared to a negative gross profit of 33 million from one of your the fixed price legacy projects and it had been transportation solutions in the same period last year.
And then 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.
At June 30, the remaining backlog to be worked off on these four projects with $699 million compared to $1 1 billion at the end of 2022.
The four legacy projects comprised 13% of consolidated revenue in the second quarter and 10% backlog at June 30, compared to 16% of consolidated revenue in the full year 2022 and.
17% of backlog at December 31st.
Yeah.
Turning to slide six concessions revenue for the second quarter was $27 million compared.
Compared to $19 million 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 to continue to recover in 2022 and into the first half of 2023 from the most severe impacts experienced in 2000 22021.
This recovery was evidenced by the fact that traffic in the second quarter averaged 73% of the pre pandemic level in the second quarter of 2019 compared to average traffic in the second quarter of 2022, being just 43% of the pre pandemic level.
Adjusted EBITDA in the concessions segment of $28 million compared to $17 million in Q2 last year.
Primarily due to results from the Bermuda Airport, and an increase in management and development fees.
Turning to slide seven at the end of the second quarter <unk> had a committed revolving credit facility of $600 million of wood.
188 million was drawn 11 million utilized for letters of credit.
We expect to repay these debentures at maturity or before.
At this point I'll turn the call over to John Lindsay.
Okay.
Yeah.
Thank you Dave.
A significant impact.
On the full large fixed price legacy projects being performed by joint ventures and weak economy the participant.
Continue to be felt in our results.
Cotton on what partners are working toward resolution on compensation for the impact.
These projects are faced.
With respective project own it focused on reaching fan reasonable settlement agreements.
As we move towards project completion in each case.
As I've said before this will take some time, but we all need constantly and making progress.
Three of the whole project are currently expected to be substantially complete by date between late 2023.
In the Midland from solvent 20 fall and the <unk>.
<unk> is currently expected to be substantially complete during 2025.
Turning to slide nine demand for <unk> services across Canada.
Overall supply chain efficiency.
These factors are stabilizing to some extent and have largely been and will continue to be reflected.
The pricing in commercial in terms of <unk> and prospective project awards and bid.
Yeah.
However results have been negatively impacted by the whole legacy project in <unk>.
Recent periods.
And then mining positive revenue and profitability trends in the <unk>.
Balance of E com business.
Turning to slide 10.
Backlog of $6 9 billion.
At June 32023, and our recurring revenue programs continuing to keep up with demand.
I Couldnt believe it.
Mission to achieve further revenue growth over the next few years.
In the second quarter <unk> was awarded a number of projects that were added to backlog, including delivery of the deal would trade improvement project in Alberta.
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Scarborough Subway extension project medallion to new nuclear project will only be reflected in backlog.
Successful conclusion of the lengthy development phases.
Acorn, including joint ventures in which we are a participant is also pre qualified on a number of project bids <unk> awarded during the next 12 months and as a considerable pipeline of opportunities to further add to backlog over.
<unk>.
Coming back sorry for this trailing 12 months' recurring revenue of $1 1 billion.
At 40% since the prior year period, and 74% versus two years ago.
Utility operations and contributions from the expansion on Cardinal works and Cobble subway extension project.
Julien the respective development phases.
The primary drivers of the growth.
Utility operations.
Bensman from these projects as we continue with the development.
I expect it to contribute to future growth and recurring revenue.
The concessions segment can you help us sort of expected to see ample traffic in Bermuda, continuing recovery in 2023 and from solvent training pool.
Turning to slide 11.
<unk> continues to support the energy transition to build and operate first enabled infrastructure.
In the second quarter Youll need energy storage project.
<unk> financial close it.
With a concession at an 875% equity partner.
Elliot.
<unk> was awarded.
Long run $41 billion EPC contract.
Limited partnership.
To build at least 250 megawatt 1000 megawatt hour advanced stage.
Connected battery storage project.
Presenting the largest clean energy storage project in Canada.
Projects, such that Omega energy storage.
And then on corridor works.
<unk> subway extension and the Darlington nuclear project.
Demonstrate the past economies on twin great opportunities linked to decarbonization.
Sustainability and energy transition.
Turning to slide 12.
In addition to large scale LNG projects.
We continue to expand our portfolio with eight columns Green energy service.
Residential and commercial renewable energy projects.
These also include strategic partnerships with company.
Electrification and charging infrastructure.
Municipal transit advent season, and all of the corporate fees too.
Followed that decrease using clean energy.
We continue to work towards reducing our own ambition.
Switching our operations.
More sustainable and piloting new technologies.
Such as the use of hydrogen generation renewable power on the construction side and electric equipment.
Turning to slide 13.
Strong demand.
Growing recurring revenue program and diverse backlog in hand.
<unk> is focused on achieving solid execution on projects and selectively adding to backlog.
Disciplined bidding approach.
Paul its long term margin improvement in the construction segment.
The concessions segment in addition to expecting an ongoing recovery in travel.
<unk> as I mentioned Apple through 2023.
There are a number of opportunities to add to the existing portfolio of Canadian.
And international concession in the next 12 to 24 months, including project with private sector clients.
Our collective focus on sustainability.
And the transition to a net zero economy.
Growing expansion on core you don't work project Meda energy storage project.
Sure.
Example of the role <unk> homes concession segment is making in developing.
<unk> and maintaining assets related to these transmission.
Thank you.
Now I'll turn the call over to analysts for questions.
Yes.
Yeah.
Thank you.
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Our first question comes from Spectra question from Raymond James. Please go ahead.
Good morning.
Good morning.
We all knew there were risks.
Hi.
We all knew there were risks residing in these four 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 short three months since we last reported to make you take that significant of a progression.
Yes.
Youre right it was legacy projects.
And the dynamics of that.
Negotiation, especially when we are reaching up to the <unk> project.
<unk> are extremely complex.
Zama negotiation about one parameter.
Our client.
Future modification as a condition of executive session of our call talk to you.
Oh, yes.
And the client in fact I'm going to.
Compensates for why I mean, there's a lot of parameters.
About the risk taken out about eventual modification to the Ta.
About <unk>.
Between cash.
And.
More long term additional revenue, we also opt to deal with different partners on joint venture. We are not alone. We are meeting with different client with different decision, making process or this is extremely.
Complex.
And.
These explain the outcome.
Location.
Cannot be.
Perfectly.
Full cost dollar for dollar what is sure is that every day on this whole project, we are negotiating with our clients.
Every day, we are progressing.
The high end of those projects that you have probably not see that the backlog associated with this project now.
And the 700 billion.
And when you.
Comparing to our.
<unk> backlog, which is six nine years.
All with our quality backlog when you add the suite progressive design build.
Jack.
We've had something like 7% to 8 billion of that mission.
Okay.
It has now become.
A very small portion.
I'll call it backlog.
For that small portion of our backlog and I guess instead of a black hole and we just we just don't know.
Okay.
Where things will land.
Very difficult for us on the street.
Figure out what what future projections of Dolby.
And what is sure is that every day.
I mean with this project is a victory because we have.
In our backpack.
To execute.
Okay. Thank you.
Okay.
Okay.
Thank you.
Our next question comes from Chris Murray with ADP capital market, Chris. Please go ahead.
Yeah. Thanks, guys. Good morning, So maybe following on that question.
A different way to think about it.
What you've been telling us at least for the last few quarters of that.
You thought you had maybe every forecast behind you.
But we'll do operating at lower margins now.
Like how should we be thinking about margins through the completion of this.
At this juncture.
Absolutely I hear what youre, saying about good backlogs.
Side of these projects, but these projects kind of feel like theyre 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.
Yes so.
Chris in terms of the legacy projects.
The position we take.
At 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 a visit to them.
Then the <unk>.
EBITDA margin effectively from those core projects should be zero on a go forward basis.
If they are in line with projections and then.
Overall EBITDA margins.
If you look on numbers.
Over.
For Q2 and over the.
Last 12 months excluding.
The impact of the legacy projects you can see those margins have been.
Progressing quite nicely.
The overall margin profile of the backlog is healthy.
Improving over time, we've talked a lot about the fact that we're in a strong demand environment for infrastructure and construction generally and that's being reflected in not just the building backlog.
But also the margin profile of that backlog and you're seeing that in the numbers and the rest of the business. So.
We expect that trend to continue.
So the sort of the base business is.
As I said the legacy projects in theory should be zero.
Okay.
We'll have to work with that.
Yes I.
I guess moving on the.
The major iron ore.
This one but just the entire government's been talking a lot and some of the other.
Folks in Ontario, a boat.
Additional nuclear development, and certainly you're well positioned there I.
I guess a couple of questions can you maybe frame.
Scale of the opportunity that here and I guess.
Each of US I mean, if everything that everyone's talking about.
Additional small nuclear reactors large large reactors I mean does that all kind of comes into play is there a limit to how large or.
Or how much nuclear exposure you folks can actually.
A comedy.
Yes, I can take this one.
Nuclear.
It is a long term industry. It means that you don't decide on Friday that youre going to build.
Reactor and begin to work on Monday, I mean that the <unk>.
<unk> asked to be ready or the environment in license the technological licensee.
The key to design build and operate.
I think 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 billion.
New orders during the quarter for Bruce Lee.
We now.
The top 20 of the six reactors.
And.
Kannan Executive Shannon.
At OTG.
We see that two units to grow.
Each unit being more or less three years of work, but as it can.
Lap.
Just as a signal of.
Lessons learned and the way we are progressing <unk>, probably not to you that the second unit at <unk>.
We'll just delivered and substantially completed biopsy 169 days ahead of schedule, which just so the way we map to know these rehab units.
Jason.
And he didn't Lee.
There is a decision coming about the refurbishment of four unique at <unk>.
I'll be going to come during the Q suite from solvent <unk> suite.
With one year, one year and a half preparation.
Early works and then we will begin to look at we are awarded to all.
All of these take time.
Regarding the small modular reactor, we havent been attending a sixth year alliance with the <unk>.
For the first quarter.
Probably have not ceased announcement that they will not be one.
For small modular reactors or <unk>.
<unk>, all Heath will be phased and will take time. So all these reserves.
King yet often aurizon.
Something like 15 years.
Without even talking about the units that can be developed at group. So we are not.
Worried about.
That's total.
Ceiling in our capacity what is more important for us is to be sure that all of the teams that we have been training recruiting and developing are going to stay with us.
Not be all within the development of all of those I would say.
Clear.
Program.
Okay. That's helpful. Thank you.
Thank you.
Our next question comes from Glenn <unk>.
What it does.
Chocolate Securities Cornwall. Please go ahead.
Yes. Good morning, everyone was wondering if you could provide detail.
About the potential charge to be taken in the second half their 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 put is potential settlements that you were looking for and maybe there remain.
Meaning 40% exposure to your backlog to fixed price the risks behind the.
Projects are much smaller in terms of size, but wondering if there is any risk with respect to the 40% remaining exposure through the backlog.
Sure.
So yes.
Yes, I mean, if you.
Sure.
I'll 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 the write downs.
In the second quarter take all of those factors into account.
They are all based on forecast through to the end of the job.
So.
Yeah.
Sure.
Yeah.
That positioning.
Uh huh.
Yes.
A case of being able to say, okay now expect Vista.
If those forecasts are correct then the impact on those projects on a go forward basis from a profitability perspective should be zero, having said that.
As we flagged Mayo for.
A fairly lengthy period of time.
The remaining risks until we get to the end of these projects. It's just the nature of the.
The complexity of the situation as Jim described earlier in terms of the balance of the.
The backlog is.
<unk> seen that.
Mix of work is being shifting.
Really significantly over the last.
12 to 18 months away from fixed price into more non fixed price work.
As you as you know there is still backlog.
In fixed price, we're very comfortable with with those projects.
We called out those four 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.
That trend to continue in terms of positive margin development. So so no we don't see risk.
In the rest of the portfolio.
Okay. Thank you.
Thank you.
Our next question comes from Matt <unk>.
James Industrial Alliance Securities. Please go ahead.
Hi, 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 at this time.
How that might.
In fact, 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 2020, I'm just wondering if that's still the case.
Yes.
Just thinking about the legacy product.
Question is about the correct yes.
Yes.
We.
We are in.
Finalizing the execution of three of the project.
The fourth one will go up to 2025, we are negotiating.
With our client there is low dumped.
In all our client that.
It was the project that are suffering from <unk>.
Asian and needs to be compensated now Asaf explained the dynamics of the negotiation now.
Extremely.
But I can tell you that on too long.
Project E.
The amounts on the table.
And the negotiation not quite substantially.
Nishu off all of the parameters attached to the additional revenue.
And this is where we.
We are still working it.
And we.
We expect some further settlements.
In the future in the near future.
Extremely.
Difficult.
Complex negotiation.
Yeah.
Okay.
And just.
Maybe.
If we sort of look at the underlying business ex these projects can you just maybe confirm what the.
Revenue.
EBITDA would have been on a normalized basis outside of the impact from these projects I'm just trying to get a sense of what the the rest of it how the rest of the construction business performing.
I will begin and maybe David.
You need more information.
As you have noticed the habit.
Without this legacy project called Q2 would have been 98.
Millions of achieve extremely strong and.
Yeah.
Trailing 12 months EBITDA without the legacy project would have been $375 million and when you know the revenue we Avi <unk>.
To me.
Hi in the industry, it's probably one of the best guano. It means that we think that our strategy.
We have been developing over the last four years.
He is the right one balancing our activity about straightening out what exactly shouldn't capacity.
Because the underlying reason no.
<unk> business I would say I've never been I've never been that strong.
In addition, as I've already explained we are.
And the lots.
Everything related with the first weeks of new projects.
As I say I mean, we have we have $6 9 billion of backlog that we have seven.
Billions of additional quality backlog associated.
With our three progressive design build project Encore Scarborough rule, and small and modular reactor you just need to we were not talking at all we are in a very favorable position to choose it.
The project the client.
The timing is the best fit.
With our capacity and this is why we are quite optimistic with all of those parameters about.
Acorn.
After those legacy projects are definitely behind us.
Okay.
And to add to that.
Yeah.
Now you also asked about revenue and margin impact.
To work at the impacts on the base business, So as Joe Louis said, the EBITDA impact.
With 81 million so excluding those legacy projects.
The rest of the business generated $98 million in EBITDA.
Revenue attached to those legacy projects in the second quarter was.
Approximately $150 million. So if you exclude the legacy projects.
Altogether, then the EBITDA margin.
Consolidated basis in the second quarter would it be nine 6%.
As opposed to one 4% reported.
Is that fair.
I was looking for it seems like there's some very strong organic growth tailwind.
Our margin is pretty healthy on a normalized basis I guess, you just got to work through.
These impacts over the next few quarters.
Maybe just one last question for me.
So you got the real building sale completed in the Bermuda minority sale coming up next.
Just any updates on use of proceeds and where do you expect sort of to end.
For the year in terms of the balance sheet and the leverage profile.
Yes, so as you know.
Transportation sale closed in Q2.
We expect the sale to close shortly.
We have now.
<unk> received all final approvals. So it's just a question of the.
Paperwork basically backwards and forwards between lawyers.
Should be closed in the next couple of weeks so.
That will contribute.
And then $28 5 million.
And so as the U S. Dollar was approximately 170 and 75 billion Canadian dollars.
To the cash position in Q3.
Obviously, we have the convertible debenture maturing at the end of the year.
<unk>.
The proceeds from those two transactions because there is lots of flexibility in terms of options to deal with those converts will continue to monitor the market at the same time.
To decide if we want to do something in terms of the separate issue, but otherwise we will use the balance sheet too to deal with those combos.
So I guess in terms of the leverage profile and it will depend 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.
Understood I appreciate it.
Thank you.
Sure.
Thank you.
Next question comes from Jonathan Lamers, No question, but could you characterize Jonathan Please go ahead.
Okay.
Thank you.
John the way just a follow up on your earlier answer about.
Settlement compensation payments.
On these legacy projects.
Recognizing that the negotiations are complex.
Do you have visibility today, so whether these.
Might be received later in 2023 or 2024.
And David if they do fall into 2024 would you expect that to be.
Positive free cash.
Year.
Yeah.
I will take the first part of the answer.
We are working off so that part of the negotiation.
And kind of how you're likely hold handle the yeah.
And part of the payments can be done before the end.
Yeah.
It's quite an easy usually payments off phase there.
There are multiple ways.
I would say.
<unk> paid.
But all of this.
It's part of the negotiation so.
Difficult to give a more precise answer what is sure is that we negotiate with our clients and.
And we did we are pushing to the right. So you don't between them.
Early payments and.
Maximizing additional revenue.
Okay.
And Jonathan in terms of.
If those settlements were in 2024, then yes, I would expect 2022.
The 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.
Does that unwind.
That will be a contributor to cash flow going forward.
Okay 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.
Yes, I mean, some of that is attached to.
These claims settlements that we're talking about.
And the four legacy projects.
And some of it is just attached to.
Some of the timing of milestones.
Other projects.
As well as just the overall growth in revenue over the last 12 months. So it is a combination.
<unk>.
But.
As we will see some usual seasonality in that number but as we.
Reach various settlement agreements and as we hit milestones on some.
Projects that.
Sure.
Our underway then then yes.
We would expect that number to come down over the balance of this year and also into the first part of next year.
Okay. Thanks for your comments.
Thank you.
Our next question comes from Ian Gillies from Stifel. Please go ahead.
Good morning, everyone.
With respect to the four.
With respect to the four fixed priced legacy contracts.
Moving ahead are you still seeing much in the way of change orders are 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.
Of that revenue.
Okay.
I would tend to say that we are not expecting it.
Additional work or <unk> or <unk>.
I mean, it's not the issue anymore. The design of this project is over.
The scheduling.
Now stabilized.
Just the issue is just about.
Agreeing on a fair and reasonable compensation.
The payment.
It will be compensation with our client, but I do not see developing on four legacy project.
Additional work that we should do that we don't know and that would not be recognized.
We have all this noise.
Satellite.
Yeah.
Okay, 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.
Yes, 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.
Or in some cases with the same clients when negotiating with now.
And.
As we secure work can prequalify 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 our concessions model.
Or.
Progressive design build model or any of the kind of models.
Yes.
Regardless of the client as well so so no we haven't seen any any restrictions on our ability to to pursue work.
Okay. Thanks, that's helpful I'll turn the call I'll turn it back over.
Thank you.
Our next question comes from Mark Thanks Keisha.
Brian Jo Maxa. Please go ahead.
Hi, good morning, gentlemen.
<unk>.
My question.
Maybe in relation to your good morning Ali.
In terms of your thoughts on when it comes to the dividend payout ratio, whether as a function of net income into free cash flow because I mean.
Leverage is likely probably going to go up I mean JV cash.
Sort of stripped out I mean, standalone cash is pretty low despite obviously the influx in Bermuda.
Trying to think how youre balancing.
That risk on a going forward basis, especially as some of the difficult projects.
From time to run through.
So maybe any update on that front and just to be helpful. Thank you.
Yes, so I mean, we.
We expect to see.
Net leverage reduce going forward.
With the proceeds from.
From Bermuda.
Settlement.
Claims as they are.
Roll through the numbers.
And as we generate cash flow and in the rest of the business, which as we've talked about is performing well so.
From that perspective.
No.
No concerns with.
Well 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.
Uh huh.
We try to retain a fairly consistent approach and there is nothing in our outlook that would.
Causes to change that philosophy.
Yeah.
And is that stress tested for.
Another.
Initial sort of negatively forecast in terms of projects or how you're thinking about it.
I, just thought sort of the base case scenario.
Maybe any incremental thoughts on that.
Yeah of course, I mean whenever we.
Talk about <unk>.
Allocation or use of balance sheet.
For any purpose.
We're always looking at a range of scenarios rules always looking at.
The various ways things can play out I mean, it's just it's obviously a part of.
Prudent planning.
And decision, making so so yes, you can you can assume that.
Any decisions, we make around capital allocation appropriately stress test it.
Okay.
Maybe just to hop on the noncash working capital dynamic again like what is your visibility maybe for the remainder of the year.
In 2024.
Yes.
The legacy quote unquote projects are coming to fruition, maybe any help on that front would be.
Thanks.
Yes, I mean as you already talked about earlier the timing on on these is harder to predict.
But we do expect that.
[noise] any settlements reached rule will be positive to overall working capital.
We should see.
Some benefit from.
A recent settlement in Q3.
Our working capital position.
We will also have some seasonality in Q3, because it's our highest revenue quarter.
That will offset that to some extent.
If we if we were able to reach additional settlements through the balance of the year then.
I expect some of the working capital build.
Just to expect but some of the working capital build we have seen in the first six months of this year will unwind.
And then.
Through 2024.
The view is that working capital should be.
Contributed to overall cash flow.
Okay.
I think I mean, obviously it wasn't just <unk>.
Infrastructure projects about any updates on your pipeline.
Okay.
Some negotiation.
Thank you.
Can you repeat the question Mike to just breaking up there.
Yeah.
Oh, sorry, I apologize.
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 cable assess if there's any updates on the timelines and negotiations with clients that are small.
So I'll talk to K process in.
<unk> will take CGM so in terms of.
<unk>.
No.
No real update you will see the loan would you need.
In the disclosure is the same as the prior quarter, we continue to go through the legal process.
Waves.
Various rands of discovery.
We still expect that too to end up.
In court hearing.
In.
Late 2024 is our best estimate at this point in time.
No nothing.
Nothing changed from some previous quarters.
Yeah.
Yes.
<unk>.
What where are we at the moment you probably remember we offered.
We have to spread.
The first one quite cool.
Three we have an agreement with <unk>.
T J our client.
Regarding.
Cash support.
To finish the job we are aiming to finish it.
Around the end of September .
All our I mean, our productivity onsite is going quite well we are now running.
The last kilometers of the breakthrough.
At the same time.
The arbitration with our client, but also under discussion and and.
Yeah.
Negotiation ongoing around a certain number of topics.
I imagine that.
Yeah.
The arbitration either way is that he has decided to settle our issues.
And then at the end of the story is probably going to be between and $2024 25.
From the moment, we reached mechanical completion around the end of September we may also see Ts.
Commonweal of our client and ourselves.
Find a settlement.
And this could come.
Much quicker.
In the first half of 2024 at the moment.
All focused on it.
Working as efficiently as we can and preserving our rights and capacity for the ongoing arbitration.
Okay.
Thank you very much.
Thank you.
Our next question comes from Michael <unk> from TD Securities. Michael. Please go ahead.
Thank you good morning.
Similar to <unk>.
The figures you provided earlier, Dave on the <unk>.
What the quarter would have looked like had you excluded the impact from the four legacy projects can you provide that information for Q2 2022, just we can get a comparison I don't think we have the revenue.
Impact from last year, maybe and also just clarify what the EBITDA would have been.
Yes so.
Q2 last year in terms of.
EBITDA was reported to stage eight five.
And that was asked.
Adjustments on the four legacy projects or impact to the legacy projects of $28 two.
So effectively.
Around 60, 66 $67 million 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 million, but we can we can certainly follow up on that and provide you with the exact number but it was somewhere in that ballpark.
Okay. That's helpful. Thank you.
And then.
With respect to the revenue contribution from the four legacy fixed price JV projects, the $150 million this quarter.
That's a bit higher than the than the decline in backlog and those projects with the decline in backlog quarter over quarter was closer to $100 million. 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.
We have in backlog.
Do we sort of understand the discrepancy there in the second quarter was.
Was that all related to one of the projects or was it spread across several just trying to get a sense for what.
What happened there in the quarter.
Yeah.
Primarily related to that.
The civil project.
As Joe Louis said, there's lots of different parameters around these negotiations.
And as we as we go through various discussions.
As various.
Items.
Clients takes off the table in terms of obligations as things to Joe.
Venture.
Agreed to.
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.
Increased cost.
And therefore, that's what you see.
With respect to that civil sector project to the margin adjustment in the quarter.
So that generate that effectively goes through.
That backlog number.
Okay got it.
And then just lastly from me.
With the Bermuda sale expected to close in a few weeks I know you've disclosed and then reiterated the.
The sale price.
Canadian dollar terms it works out to around $170 million is that a net number that is that we should think about the net number or is there some.
Hum.
Costs that we need to think about it is just that the net net proceeds would be something lower than that.
Yes, there is.
Nothing in terms of.
Adjustments for debt or cash or anything like that just just normal transaction type fees primarily.
But yes, I don't know.
So like <unk>, where we transferred all our equipment leases and equipment financing as part of that sale and the impacts of the proceeds.
Of that nature.
It could be either.
Okay alright, okay. Thank you.
Yeah.
Thank you.
Our final question comes from <unk> Khan from RBC capital markets. Please go ahead.
The gentleman. We said this is an arbitration process right now, but but it may not end up being resolved through arbitration. It may end up be resolved through discussions and negotiations. So we whereas active that project because we are in any of the others in terms of.
Risk ranking them again.
If you if you step back and say you know what what do we what do these physicians represent the end of the queue to the they represent our best view.
Every one of these projects so.
They don't risk ranked the.
Each one of them has a position that we feel is the right position as a joint venture and it is a cold as part of that joint venture feel that is gonna be the throttle position.
Okay, Great and then uhm it seems like in the corner there are some P. Penny solved and Q2 and you're looking at are there any other sort of excess assets that might be disposed of an official quarters or anything that might be up for sale or should keep an island.
No I mean in terms of those games on on a couple of properties I mean that was just a coincidence that they were both in Q2.
One is in our industrial sector really <unk>.
Consequences kind of pre pandemic <unk>, so I postponed Emmett quill to we decided it didn't in the industrial group, we need less office space, We had an office in Brantford, Ontario, an office in Cambridge, Ontario, We've consolidated those two into one location and that freed up the <unk>.
Two that we own two to be sold and the near the property isn't equipment facility.
We historically been longterm leases at that facility.
<unk> was selling the property in 2019, we had a riot first refusal we purchased the property in 2019 to be able to effectively secure.
The long term.
Home for that equipment Division.
And then this year.
It's part of the <unk>.
<unk> a T E, which has a large amount of equipment going going with that so we decided we may not be a long term in that facility anymore, maybe too big for his long term and so we took the opportunity to sell a property we will lease for a period of time while.
We <unk>.
Evaluate our options but.
No I mean, typically we we were not old as a real estate, we don't <unk>.
Aim to tie up capital in old buildings and properties really the only real estate, we tend to <unk> aggregate, some and things like that.
So they were both.
Sales.
Just makes sense based on where we are with those two businesses.
Okay, and then just one last one you mentioned the the rest of the business. Excluding this for larger projects in the margin indicated it sort of in the <unk> 995 per cent range Uhm, obviously quite high relative to the run rate margins over the last little while I've got.
What's the implication that these four projects, maybe I've been a bit of a drag in one day and the margins for the overall business or a lot higher or.
Or is it just like the rest of the base business isn't saying maybe loss of that you might have seen in the past just just trying to contact you on that nine plus per cent number.
Yeah, No I mean, I think <unk> <unk> <unk> you can assume that the full legacy projects have been dragging you I mean <unk>.
Even you know obviously this this cool too we've we've got some large or just <unk> even in <unk>. We haven't had it just been so it's still tended to be.
Zero margin type projects on on revenue so they dragged down the overall margin.
On an ongoing or have been for a period of time name as we as we look at the rest of the business. It's.
Nothing in there as I talked about earlier there is is really.
Considering us from a a margin or risk profile perspective, so without those full legacy projects. We we do expect margins to be.
Going forward will representative of where the base businesses today.
Maybe I can add some.
General thoughts about it I mean.
I Hope you see we do understand that concerned about the legacy project and you you can't imagine.
Management team level of eight on the <unk> on finalizing the snake location was compensation on job, but I'm inviting you to <unk> <unk>.
<unk> with all of that legacy project without <unk>.
Among to Squeak question, I mean, a few minutes of <unk> the 98.
Medium and equipment and it'd be done to compare me to choose from sobbing 22, not only to look at the school to <unk> everything we have been implementing during the last two to three years to realize that we are delivering on.
Everything we think we would do to position <unk> for the future and on a on a much more favorable landscaping turns off.
<unk> in in terms of Derisking of Claudia injury skiing off the most of payment fixed price and and then lollipop cries in terms of refereeing revenue in terms of market I think we we we have known.
Quite a lot of efforts, we thought with Turkey and acquisition and we <unk>. We would go on with this regarding <unk> Franklin.
Teaming fault of the energy transition in front of the wave of all of them sustainable project. It means that.
When you have a look at the backlog rehab and all of his efforts.
Why I say I mean, it's it's quite an interesting to try to imagine what would it be <unk> <unk>.
Alright, thanks, very much for the color.
Mmk <unk>.
<unk> Q and a session.
<unk> taking remarks.
Thank you Lord and appreciate everyone for your time today I feel free to follow up is always with any questions and have a great rest of your day.
This concludes today's coke. Thank you for telling me.
[music] [noise].