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Aecon notches record revenues as it takes on higher-risk infrastructure projects

MONTREAL — On the heels of record annual revenues and successful project bids, Aecon Group Inc. says it is not yet feeling any pressure from high-risk, fixed-bid infrastructure contracts it will face over the next couple of years.

"So far, none of those big jobs have experienced...problems during the beginning of the execution," Jean-Louis Servranckx, who came on board as CEO last September, said on a conference call with investors Wednesday.

"I remind you that most of them just begin with almost one year of detailed engineering, so this is where we are, and some preparatory works."

The construction firm logged a 16-per-cent increase in revenues to $3.27 billion last year, up from $2.81 billion in 2017.

About 42 per cent of Aecon's 2018 revenue derived from fixed-price contracts — under which companies have to eat any cost overruns. That slice is set to expand, as nearly two-thirds of its backlog revenues are set to come from fixed-price contracts.

The company has secured new infrastructure contracts worth $5.8 billion, propelling the year-end backlog to a record of $6.8 billion.

The launch of the construction phase of both the Finch West LRT project in Toronto and the Gordie Howe International Bridge project — set to run between Windsor, Ont., and Detroit — drove "stellar" quarterly results via higher management and development fees in the fourth quarter, said analyst Benoit Poirier of Desjardins Securities.

"Most importantly, [Aecon] reiterated its positive outlook for 2019, as its record backlog and robust pipeline of opportunities as well as its ongoing concessions should lead to an improved adjusted EBITDA margin," Poirier said in a research note, referring to earnings before interest, taxes, depreciation and amortization.

Other major projects booked last year include Montreal's REM light-rail project and the Site C dam in B.C., scheduled for completion in 2022 and 2023, respectively.

Servranckx said Aecon is establishing a new urban transportation segment to sharpen the focus on certain projects, such as the Montreal REM and the Finch LRT.

"We just feel that these projects are special," he said.

The company has equity stakes and 30-year maintenance contracts on both the Finch LRT and Gordie Howe bridge projects, as well as the Eglinton Crosstown LRT project in midtown Toronto, slated for completion in 2021. It will also handle post-construction operations for the bridge and Eglinton light rail line.

Last August the firm rejoined the consortium slated to build and operate the cross-border bridge after pulling out in May as it was undergoing a federal review about a proposed takeover of Aecon by a Chinese state-owned company that was ultimately blocked by the Canadian government on national security grounds.

Meanwhile, long-term projects such as the refurbishment of Ontario's Darlington nuclear plant through 2026 should provide financial stability, Aecon said.

The $5.8 billion in new awards last year — a marked increase over new contracts of $2.8 billion in 2017 — also included $263 million last quarter for the Coastal GasLink pipeline, a controversial $6.2-billion project slated to traverse the traditional territories of 20 First Nations in northern B.C.

The Toronto-based company said it has raised its quarterly dividend by two cents per share to 14.5 cents.

Net profits jumped 32 per cent to $27.9 million last quarter, from $21.1 million a year earlier, Aecon said.

That equalled 41 cents per diluted share, up from 33 cents per share in the previous year's quarter but below analysts' expectations of 44 cents per diluted share, according to Thomson Reuters Eikon.

For the quarter ended Dec. 31, it said revenues rose 38 per cent to $948.5 million compared with the same period in 2017.

On the Toronto Stock Exchange, Aecon's shares gained 71 cents or 3.8 per cent at $19.30 in afternoon trading.

 

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Christopher Reynolds, The Canadian Press