Good day and thank you for standing by. Welcome to the Aecon Group Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question, you will need to press star one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one, one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Adam Borgatti. Please go ahead.
Thank you, Abigail. Good morning, everyone, and thanks for participating in our year-end 2023 results conference call. This is Adam Borgatti speaking, Senior Vice President, Corporate Development and Investor Relations. Joining me today are Jean-Louis Servranckx, President and CEO, and Alistair MacCallum, Senior Vice President, Finance. Our earnings announcement was released yesterday evening, and we have posted a slide presentation on the investing section of our website, which we will refer to during this call. As noted on slide two of the presentation, listeners are reminded that the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although Aecon believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct.
I'll touch first on highlights from Aecon's year-end review, and Alistair will then review our consolidated and segment results for the year and address Aecon's financial position. We would normally then turn the call over to Jean-Louis for our operational review and outlook, but unfortunately, he's lost most of his voice at this time, so I'll read his prepared remarks and we'll save what voice he has left for your questions following the presentation. On that note, following our comments, we'll be glad to take questions from analysts and ask that analysts keep one question before getting back into the queue to ensure others have a chance to contribute. Now turning to slide three.
2023 was a transformational year for Aecon, driven by three strategic transactions, which allowed us to capture unlocked value for shareholders, partner with respected institutions with significant experience to help Aecon grow in alignment with our strategy, and strengthen Aecon's balance sheet and capital position. Through the tremendous efforts of our teams, we were able to realize over CAD 500 million in proceeds through the sale of Aecon Transportation East, a 49.9% sale in Skyport, and Oaktree's investment in Aecon Utilities, all at attractive and accretive valuations.
The transactions strengthened Aecon's capital position, including through the repayment of CAD 184 million in convertible debentures at the end of the year, and will provide financial flexibility to capitalize on attractive growth opportunities ahead. Aecon's free cash flow in 2023 of CAD 123 million improved by CAD 258 million compared to a negative CAD 135 million in 2022.
We continue to focus on de-risking our business with 58% of 2023 revenue on a non-fixed price basis compared to 49% non-fixed price work in 2022. Finally, interim agreements were reached on the four legacy projects, with one reaching substantial completion in 2023, two expected to be substantially complete by the end of 2024, and the final one expected to be substantially complete during 2025.
The four legacy projects represent 7% of backlog at December 31st, 2023, compared to 17% at the end of 2022. We would be the first to acknowledge that despite the progress made to date, risk remains if assumptions, estimates, and/or circumstances change. But we and our joint venture partners are focused on project completions, pursuing further recoveries, and putting these legacy projects behind us. Every day, we are getting closer to the end. And with that, I'll turn the call over to Alistair.
Thanks, Adam, and good morning, everyone. Turning to slide 4. Revenue for the year of CAD 4.6 billion was CAD 52 million or 1% lower compared to 2022. The lower revenue is largely attributable to the sale of Aecon's Transportation East business in the second quarter of 2023, which generated CAD 51 million of revenue in 2023 compared with CAD 326 million of revenue in 2022.
Adjusting for the sale of Aecon's Transportation East business, revenue increased on a life-for-life basis by CAD 223 million or 5% in the year. Adjusted EBITDA of CAD 143 million, a margin of 3.1% compared to CAD 219 million, a margin of 4.7% last year, an operating profit of CAD 241 million compared to an operating profit of CAD 97 million in 2022. Excluding the impact of the four legacy projects on results in 2023, adjusted EBITDA from the balance of the business was CAD 359 million, a margin of 9.1%.
Diluted earnings per share for the year was CAD 2.10 compared to diluted earnings per share of CAD 0.47 in 2022. The improvement in operating profit and diluted earnings per share was largely due to a gain related to the sale of 49.9% interest in the Bermuda International Airport concessionaire of CAD 139 million, including a fair value remeasurement gain of CAD 80 million on Aecon's 50.1% retained interest in the concessionaire, a gain of CAD 37 million from the sale of ATE, and higher gains on the sale of property, buildings, and equipment of CAD 39 million.
Reported backlog of CAD 6.2 billion at the end of 2023 compared to backlog of CAD 6.3 billion at the end of 2022. Backlog at the end of 2022 included CAD 391 million from Aecon's Transportation East business. New contract awards of CAD 4.5 billion were booked in the year compared to CAD 4.8 billion a year ago.
As announced yesterday, Aecon's board of directors approved an increase to the quarterly dividend to CAD 0.19 per share from CAD 18.5 cents per share previously, with a next payment to occur on April 3rd, 2024. Now looking at results by segment. Turning to slide five. Construction revenue of CAD 4.6 billion in 2023 was CAD 48 million or 1% lower than the previous year.
The largest decrease in revenue occurred in civil operations, driven by lower volume of road-building construction work as a result of the sale of ATE discussed earlier, and partially offset by a higher volume of major projects work. Revenue was also lower in nuclear operations, driven by a lower volume of refurbishment work, and in industrial operations, driven by a lower volume of work primarily at chemical facilities in Eastern Canada, and partially offset by increased activity on mainline pipeline work.
In the utilities operations, lower revenue resulted primarily from a decrease in gas distribution work. Partially offsetting these decreases were higher revenue in urban transportation solutions, primarily from an increase in rail expansion and electrification work in Ontario. New contract awards of CAD 4.4 billion in 2023 compared to CAD 4.7 billion in the previous year. Construction backlog at the end of 2023 of CAD 6.1 billion compared to CAD 6.2 billion at the end of 2022.
Turning to slide six. Adjusted EBITDA of CAD 99 million, a margin of 2.2% compared to CAD 193 million, a margin of 4.2% in 2022. The largest driver of the decrease was negative gross profit of CAD 215 million in 2023 from three of the four fixed-price legacy projects versus a negative gross profit of CAD 120 million last year, for a negative year-over-year impact on operating profit of CAD 95 million.
Other than the impact of fixed-price legacy projects in 2023, higher operating profit in the balance of construction segment was driven by higher volume and gross profit margin in urban transportation solutions, higher gross profit margin in industrial operations, and higher gains on sales of property, plant, and equipment in utilities operations.
However, these gains were partially offset by lower operating profit from road-building construction work due to the sale of Aecon's Transportation East business and lower volume and gross profit margin in nuclear operations. At the end of 2023, the remaining backlog to be worked off on the four legacy projects was CAD 420 million compared to CAD 1.1 billion at the end of 2022. These projects comprised 16% of consolidated revenue in both 2023 and 2022, while comprising 7% of backlog at the end of 2023 compared to 17% at the end of 2022. Turning to slide seven.
Concessions revenue for the year was CAD 74 million compared to CAD 76 million in 2022. The decrease in revenue was largely driven by the sale of a 49.9% interest in the Bermuda International Airport concessionaire and the use of equity method of accounting on a prospective basis for Aecon's retained 50.1% interest in Skyport. In 2023, passenger traffic levels in Bermuda averaged 75% of 2019 pre-pandemic traffic compared to 58% in 2022.
Adjusted EBITDA in the concession segment of CAD 90 million compared to CAD 71 million in 2022, primarily driven due to improved results from the Bermuda Airport and an increase in management and development fees. As noted previously, operating profit in concessions reflects a gain in the sale in the year of CAD 139 million. Turning to slide eight. At the end of 2023, Aecon held cash and cash equivalents of CAD 259 million, excluding cash in joint operations.
In addition, at December 31st, 2023, Aecon had committed revolving credit facilities of CAD 850 million, of which CAD 112 million was drawn and CAD 6 million was utilized for letters of credit. On December 29th, 2023, convertible debentures with a face value of CAD 184 million were repaid in cash. Aecon has no debt or working capital credit facility maturities until 2027, except equipment loans and leases in the normal course. Aecon plans to maintain a disciplined capital allocation approach focused on long-term shareholder value through acquisitions and divestitures, organic growth, dividends, and capital investments. Capital expenditures in 2024 are expected to be similar to previous years. At this point, I'll turn the call back over to Adam.
Thanks, Alistair. Turning to slide nine. Aecon continues to build resilience through a balanced and diversified portfolio of work while enhancing critical execution capabilities and project selection to play to our strengths. Moving forward, we remain focused on leveraging our self-perform capabilities and one Aecon approach to maximize value for clients through improved cost certainty and schedule, while offering a broad range of infrastructure services from development, engineering, investment, and construction to longer-term operations and maintenance.
We will continue to pursue and deliver the majority of our work in our established markets while embracing new opportunities to grow in areas linked to decarbonization and the energy transition, as well as in the U.S. and international markets. These opportunities are intended over the long term to diversify Aecon's geographic presence, provide further growth opportunities, and deliver more consistent earnings through economic cycles. Turning to slide 10.
Demand for Aecon services across Canada continues to be strong. With backlog of CAD 6.2 billion at the end of 2023, recurring revenue programs seeing robust demand, and a strong bid pipeline, Aecon believes it is positioned to achieve further revenue growth over the next few years and is focused on achieving improved profitability and margin predictability. Revenue from recurring revenue programs increased to CAD 1.1 billion in 2023 from CAD 896 million in 2022, representing growth of over 27% over last year and 67% versus two years ago.
In addition, development work is ongoing in consortiums in which Aecon is a participant to deliver the GO Expansion On-Corridor Works project, the Scarborough Subway Extension Stations, Rail and Systems project, and the Darlington New Nuclear Project, all in Ontario. These projects are being delivered using progressive design-build models, and each project is expected to move into the construction phase in 2025.
The GO Expansion project also includes an operations and maintenance component over a 23-year term, commencing January 1st, 2025. As a reminder, none of the anticipated work from these three progressive design-build projects is yet reflected in backlog. Turning to slide 11. Aecon continues to support the energy transition to build and operate sustainable infrastructure. Projects such as the Oneida Energy Storage Project, GO Expansion, the Scarborough Subway Extension, and the Darlington SMR demonstrate the path Aecon is on to embrace the opportunities linked to decarbonization, sustainability, and the energy transition. Revenue tied to sustainability projects represented 64% of 2023 revenue versus 60% in 2022. Turning to slide 12. In conclusion, 2023 was a transformational year for Aecon, driven by significant transactions aligned with our strategy and the strengthening of our capital position, all paving the way for growth.
We want to thank our employees for their contributions to the achievements this year, and we look forward to the years ahead as we continue to build resilience through a balanced and diversified portfolio of work. 2024 revenue will be impacted by the three strategic transactions completed in 2023, the Substantial Completion of several large projects in the year, and the three major projects currently in the development phase being delivered under Progressive Design-Build models, which are expected to move into the construction phase in 2025.
The completion and satisfactory resolution of claims on the four legacy projects with the respective clients remains a critical focus for Aecon and our partners, while the remainder of the business continues to perform as expected, supported by the strong level of backlog and new awards during 2023 and the strong demand environment for Aecon services, including Recurring Revenue programs. Thank you, and we'll now turn the call over to analysts for questions.
At this time, we'll conduct the question-and-answer session. As a reminder to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. One moment for our first question. Our first question comes from Jacob Bout with CIBC. Your line is open.
Good morning.
Good morning, Jason.
Question on how are you thinking about revenue growth in 2024. I know there's a number of moving parts with the strategic investments and completion of projects, but can we expect revenue growth to be similar to the year-on-year performance we saw in the fourth quarter? And then what are your thoughts on the U.S. utilities contribution in 2024, and are you still targeting kind of longer-term CAD 100 million-CAD 200 million revenue?
Okay. I will take this one as much as I can. Sorry for my voice. The revenue in 2024 is about pure math, taking into account the three transactions of last year, the fact that most of our major lump-sum turnkey projects are getting completed, the fact that we have decided not to take any more big lump-sum jobs I had spoken with you about, a limit around CAD 1 billion, and the fact that we have embarked on a few progressive design-build contracts.
I mean, this is our strategy, which is totally focused on margin predictability, not on ballooning revenue. It means that we are extremely comfortable with our backlog. You remember that in our CAD 6.2 billion backlog, we don't have the progressive design-build. We are always speaking about three, which is a small modular reactor, Scarborough System and Station, and the GO Expansion.
You have seen a few days ago that we have added a fourth one, which is the Port of Contrecoeur in Montreal. So this is our strategy. It's exactly what we wanted. You probably also have noticed that we have gone the way we wanted to go in terms of transiting from fixed-price contract to non-fixed-price contract. We were representing the non-fixed-price contract 49% two years ago, 58% this year. We are targeting for the years to come 65%.
We are de-risking our activity. We are focused on margin predictability, not on improving the revenue per se. This is without taking into account the CAD 1.1 billion of recurring revenue that you have seen in our presentation. So this is what is going to happen in 2024. This being said, most of our Progressive Design-Build big jobs will ramp up during the two last quarters of the year to be ready for work on a much bigger scale from early 2025.
I think, Jacob, the second part of your question was about U.S. utilities expansion. Yeah, still very much on track and very keen to get our strategy in place with our partners at Oaktree. So far, it's gone very well, very like-minded group, and great access and experience in exactly what we're looking for. So we expect 2024 to be a growth year in that business and leveraging all of the efforts that we've put to date into success moving forward. I think you had mentioned a number about $200 million, though. Was that in reference to the sizes we're looking at?
Yeah. I think you had given some guidance in the past as far as which we're targeting and just curious what you're t
hinking today as far as the U.S. utilities group.
About consistent with that, if we were to take on kind of new investments, I'd say kind of CAD low hundreds of millions, if you will, ±, depending on what we're finding.
Okay. Thank you.
One moment for our next question. Our next question comes from Yuri Lynk with Canaccord Genuity. Your line is open.
Good morning, guys.
Hey, Yuri.
Good morning.
I mean, obviously, the balance sheet's as strong as we've ever seen it, almost no net debt there. And the underlying EBITDA of the business appears very strong. So how do we think about capital allocation here? And does the arbitration process that's coming up in the third quarter on CGL, does not knowing how that's going to go play a big role in maybe preventing you from going out and doing a buyback or something like that that might benefit shareholders?
Yeah, Yuri, it's Alistair here. So exactly. I think you saw a small dividend increase reflective of our improved balance sheet, improved cash position, and with the general business, improved outlook. We still have to complete the legacy projects, and we also have the arbitration with CGL later in the year, which Jean-Louis will talk about in a minute.
But yes, we want to really get through the two UTS LRT projects and then also get through the CGL arbitration before we make any decisions on really what to do with the cash on the balance sheet with regards to an NCIB or something like that. So we're kind of in a wait-and-see mode, and 2024 will be a bit of a transition year. As you know, in construction, we need a strong balance sheet, and so we're going to maintain that and make sure we get through this year.
Yeah. To add some color, I mean, we are extremely happy with our almost CAD 1 billion of liquidity at the end of the year 2023. This is what is needed, and this will allow us, I mean, a lot of different alternatives in front of the opportunity we can see.
Okay. That's helpful. How are your clients adapting to this push for progressive design and a more collaborative approach? How has business changed and kind of the discussions around contract structure? You had some great success last year. You won the contract in Montreal. I mean, it appears on the surface that it's being well accepted by the market, but any additional color there?
Yeah. I mean, I consider it is a win-win for clients and for contractors in terms of de-risking. In a Progressive Design-Build, you don't have lengthy and proactive negotiation, dispute, claim. I mean, I just can see the level of collaboration, for example, on the GO Expansion. It's astonishing the way we can optimize a project working together.
So little by little, I would say, our clients that have been pushed, I mean, to this new mode of contracting because of lack of competition are just discovering that it's also de-risking their way of investing, and I would say they are embracing this new way of contracting. As you noticed, I mean, during the first 1 year and a half, it's a development phase, and we don't have the revenue that we could have on other schemes of contracting, but all in all, that's better for us.
To conclude, I don't think we have to go toward 100% progressive design build. I mean, the whole resilience of Aecon is about balance. It's about balance between recurring revenue, between unit-priced job, between some lump-sum job provided they, I mean, the contractual conditions are okay, provided the client is okay, provided the size is okay, and some progressive design build, and we will navigate balancing each of those contractual modes.
Okay. Thanks for the color, guys. I'll get back in the queue.
Thanks, Yuri.
One moment. Our next question. Our next question comes from Chris Murray with ATB Capital Markets. Your line is open.
Yeah. Thanks, folks. I'm kind of looking at slide 14, which was the normalized earnings profile for the company from last year. I guess what I'm trying to figure out is that you've taken write-downs and adjustments on all the projects so far through 2023 and also 2022, but we're getting pretty close to the end here. Can you maybe walk us through in terms of pacing? Realistically, should we just keep assuming kind of the run rate that we saw in Q4 in terms of losses until we get past the LRT contracts? Any color you can give us on how to think about what to expect as we go into 2024 would be helpful.
Okay. We still have our full legacy project on our shoulders, but the situation is getting better and better. I mean, you have noticed we have something like CAD 420 million of backlog, which represents 7%, so it's a steep decrease. On this CAD 420 million of backlog, I mean, 60% is about Gordie Howe, which is not the most difficult one.
There's something like 90-95 on CGL, but most probably, we're not going to execute it because the client has other alternatives to finalize a cleanup. So it's remaining rather weak on Eglinton and Finch. So where are the issues? Basically, on Eglinton and Finch, one of the main issues is not about finalizing the job. It's not about testing and commissioning. We are extremely advanced there. For example, next Friday, in a few days, we will have three trains inaugurating up and down the whole Finch line.
It just means that all the signaling and train control systems are perfectly adequate. The issue we are facing is that we are not totally in control of the timing for the operator, which is TTC, to take over the operation. All this, I mean, has contractual implications, so we are working with our client on that. So it just means that we are not totally finished. So mainly, it has not changed. First of all, we need to finish construction. Second, we need to protect our cash to the moment we are over. And third, we need to finalize all dispute, claim, and conciliation, eventually arbitration as quick as we can and as good as we can.
Okay. So I guess my question is, in terms of the magnitude of anything that we should maybe allow for in 2024, I would assume under accounting rules, the last adjustment that we saw for Q4 take you to your best estimates. Is that the right way to think about it, or will there be other overhead costs or other things that we should allow for?
Yeah. Fair point, Chris. I mean, the projects are positioned as we expect them to be completed currently. In the fourth quarter, you would have seen some more impacts on the LRTs, which from Q3 to Q4 reflected some of the changes to scheduling and requirements to complete those. And so when those things come up in the future, we will adjust accordingly. But from what we know currently, the projects are all positioned properly. And based on all the interim settlements that we had last year from an operational perspective, we feel much better this year going through to completions. And as Jean-Louis noted, more of the potential impacts down the road could come from the ultimate arbitrations and settlements.
Okay. And then the other quick question I had for you is just any update on as much as I'm sure you guys are enjoying doing the call, any update on the CFO search and that process? And does that actually impact your tying your hands a little bit on any sort of capital deployment?
So the CFO search is well on its way. We are exploring internal possibilities and external possibilities. What I can tell you is that I've just discovered during these last two months how strong is the team that had been created by David. So we should be over with the search probably within the next few weeks. And this is what is important. I mean, an extremely strong team, all focused on closing out our legacy project, all focused on growth for Aecon and being able to tackle the opportunities around us.
Okay. That's helpful. Thanks, folks.
Thanks, Chris.
One moment for our next question. Our next question comes from Ian Gillies with Stifel. Your line is open.
Morning, everyone.
Hey.
Morning.
With respect to the competitive environment, obviously, margins are getting much better. The outlook's much healthier. Are you seeing any increased competition from international firms that may have exited the market previously, or are you seeing anyone trying to come back into Canada at this juncture?
If some big international firm wants to reenter Canada on huge lump-sum job, good luck. I mean, we're not going to compete with them on those ones. We know what it means. So I don't think that the competition is really increasing. I mean, Aecon is a partner of choice of most of our clients on most of our projects. It's extremely rare, I would say, that we are not pre-qualified on a job.
And then after, I mean, we have our priorities. We can decide, I mean, in front of our strategy, in front of our workload, where do we want to go and where we are ready to pass. But Aecon, in terms of infrastructure, is extremely well positioned. On another hand, I mean, as you have noticed from our slide on page 24, the underlying business without the legacy project is extremely strong.
I mean, I've been interested in looking at the result just published by a few of our competitors and peers. It seems to be very happy with an EBITDA at the mid-10s. I mean, we are extremely strong outside of our legacy project. Our strategy is right. We are focused on it, margin, predictability, margin, predictability, and we are going forward.
That's helpful. Then moving to the arbitration with respect to CGL and perhaps the other projects, as we think about some of the losses accrued over the last number of years related to those poor projects, would that take into account any potential outcomes from arbitration, or will that be incremental either to the positive or negative when eventually finalized?
Okay. I mean, I will begin and Alistair may we have taken position on all our legacy projects depending on the knowledge that we have of the schedule of our future revenue, of our execution cost. There is still work to do. There are still negotiations. I mean, you mentioned the arbitration on CGL.
I mean, just remember that it has begun one year and a half ago. It is ongoing. It's going to accelerate in Q3 to 2024. But meanwhile, every week, we are negotiating with our client. It means that we are using the two vectors. We are not totally in control of the result of the arbitration. You remember that it's a panel of three arbitrators, one chosen by us, one by CGL, and the third one chosen by the two arbitrators. We are working, I mean, the best we can with the best team that we have on it, but there is still an unknown about it. Alistair, do you want to add something?
Yeah. Ian, I mean, when it comes to our positions on the legacy jobs, we essentially we take a position on our claims with our partners and based on legal entitlement and the values. And essentially, if there's an outcome that differs from that, we could either have a write-up or a write-down. But our positions are based on the best information that we have, based on legal experts. And so any difference would arise from an outcome that's different from what the JV Partners have on the four legacy projects.
Understood. Thanks very much. I'll turn the call back over.
Thank you.
Thanks, Ian.
One moment for our next question. Our next question comes from Sabahat Khan with RBC Capital Markets. Your line is open.
Great. Thanks and good morning. Thanks for providing the color on the CGL. I guess just thinking about the other three projects, can you maybe just talk through what the process or kind of the road ahead there might be on recoveries and how you go about those? Is there going to be eventual arbitrations there, or will there be a different mechanism? Thank you.
So at the moment on Gordie Howe, there is no pending claim, no negotiation. I mean, we are just trying to go perfectly within the schedule that has been agreed upon with the client when we had the last deal at the end of 2023, which is the bridge to be closed around mid-2024 and the project to be substantially completed and handed over before the end of 2025.
On the two LRT jobs, yes, we have claims. We have ongoing negotiation, I would say, every day on the substance of those claims. And it will go, I mean, probably a little further after substantial completion. As I have said, I mean, we have gathered the best team within our company and externally to be I mean, to put the outcome of those negotiations and/or disputes on the best side for us.
Okay. Great. And then I guess the color you provided on sort of pro forma EBITDA margins, understanding it's illustrative, but I guess is that something we should look at as, "Look, is that kind of the long-term potential margins? Is there any sort of should we expect that over a medium term?" Any timeline you can share? Just trying to get an idea of how we should be thinking about those margins as we forecast over the next few years. Thank you.
Sure. Yeah, Sabahat. It's consistent with the last year or two as we've provided some of this color in the past. So excluding the four legacies in 2022, 2023, and as we look ahead, we've seen this kind of margin consistency. And as we remind everybody not to look at any one quarter in isolation, but to look at it on kind of a rolling 12-month basis, we would not see any reason to believe that those wouldn't be at or above the next levels. And as a reminder, these Progressive Design-Build ones have very good floor mechanisms that come into backlog next year. And so we feel comfortable with what the numbers you're seeing on pro forma these projects.
Yeah. What is also important to note is that from September 2018, I mean, we have not created any new legacy project. I've drastically reduced the size of the Lump-Sum Turnkey. We have a Gate Zero process that allows us to evaluate the risk of our pursuits. I think we are getting extremely professional and acute on this. And this is what is important. I mean, there will always be projects more difficult or projects easier. But what is sure is that we'll never, ever come back to the situation where we have been, and we are still, I mean, for a little time with too many big, too dangerous fixed-price jobs. This world is over.
Great. Thanks so much for the color.
Thanks, Sabah.
One moment for our next question. Our next question comes from Michael Kypreos with Desjardins. Your line is open.
Good morning, and congrats on the strong results. Maybe switching to cash, you received a pretty significant working capital release in the quarter with some strong contribution from deferred revenue. Can you provide some more details on the drivers of this inflow? Its one-time nature. And your expectations for working capital and free cash flow in 2024, please?
Yeah. Thanks, Michael. So you're right. We did have a big inflow of cash from working capital in Q4. Part of that came from one of our large settlements that we've previously talked about, a bridge project. And then really, the other component that came through deferred revenue was two other large advances for projects that are starting up. So that certainly helped the quarter. And obviously, for the year, we had positive working capital and really positive cash for the first time in a couple of years. So a great result on the cash flow side. Expectations for 2024 are similar to 2023 in that we expect to have a good year. I think it'll follow the seasonal patterns that we've seen in previous years.
Using cash in Q1 and Q2 and returning cash in Q3 and mostly Q4, that always seems to be our strong quarter from a cash perspective. Obviously, as per earlier conversations, it's subject to settlements on our legacy projects. The other thing I'd note is our working capital tends to be a bit lumpy, so take that into account.
Appreciate it.
One moment for our next question. Our next question comes from Jonathan Lamers with Laurentian Bank. Your line is open.
Good morning. Just taking a look at your slide with your updated mix of business, looking out, say, three years or five years, as the work in the backlog and the pending backlog converts and you continue to grow utilities, how do you see the mix evolving in a few years? Thanks.
Okay. So first of all, you probably remember, we have two vectors, I mean, in terms of development. The first one is that we want to be able to master the totality of the value chain in infrastructure. It means developing our projects, financing them, engineering or coordinating the engineering, building, and operating our assets. This is our strategy because this is where is the value. This is where is the money.
For example, Bermuda is a pure example of what I'm saying. The second point, the second vector, is about balancing our activities. And it's balancing between our different sectors. This being said, I see Aecon becoming more and more electrical and probably less about civil works. We were overweighted, I think, in civil works. The huge opportunities on the ground are about energy transition. I mean, it's about decarbonizing and upgrading the grid.
It's about being able to produce electricity on a cleaner way. We are extremely strong in nuclear. You know that our utilities, I mean, sector is working extremely well. You know that we are extremely ambitious on the growth of this utility business, although we'll do it prudently, but we'll do it steadily, I mean, to grow in the United States with the utility sector. So probably, I mean, in a nutshell, more electric, less civil.
Just following up on that, I believe your earlier comments are that you would expect the underlying margin in the construction business, ex the legacy project losses, to be sustained or potentially improved as you continue to shift that way?
Yes, we do. We think our strategy is the right one. We are extremely focused on it. We are also focused every day on closing our legacy project, as you probably have noticed. I mean, there are still in our backpack, I mean, less and less every day, but there's still work to do to be able to consider that that's over.
Pass the line. Thank you.
One moment for our next question. Our next question comes from Michael Tupholme with TD Securities. Your line is open.
Thank you. Good morning.
Hi. Morning, Mike.
Earlier in the call, there was a question about capital allocation, although I think it was fairly specifically focused on the potential for buybacks. I think, Alistair, you suggested that in some regards, this is a bit of a transition year, a transformation year, and you want to see how the legacy projects unfold before contemplating buybacks.
I'm wondering if you can maybe talk about capital allocation a little more broadly and specifically thinking about acquisition opportunities. One, would it be fair to say that sort of the comments you made about waiting to see how things play out has no bearing on your thoughts around the utilities business in the U.S. and possible acquisitions there? And then secondly, are you still looking at acquisitions in other parts of Aecon, be it in Canada or elsewhere outside of the utilities area? If so, how should we think about the potential there?
Yeah, Mike. So we are continuing to look at opportunities for utilities both in Canada and in the U.S. Also across our businesses, we continue to look for tuck-in businesses that we can add to grow the company. So certainly, the growth side of our strategy is a huge focus for us in 2024. And really, when I was talking about the strong balance sheet and preserving that, it was really in regards to the NCIB and just holding tight there until the outcome of the legacy projects is done. But certainly, our focus is on growth and the strong balance sheet. We want to put that to work in looking at things that will help strengthen our business in the future.
Okay. Perfect. Thanks. And then in the question you just received a few minutes ago about working capital, I guess you talked about typical seasonality, but there have been a lot of changes in the business over the last 12-18 months. I guess when we're thinking about seasonality, and I can't imagine that things have changed dramatically in that Q1 has always been a weaker quarter seasonally. But I'm just wondering if you can comment on any changes that we should be thinking about from a seasonal perspective given all of the evolution that's occurred in the last 12-18 months with the various divestitures and whatnot.
Sure. Yeah. I mean, Q1 continues to be our slowest quarter. And again, while we sold our transportation east business, we still have our transportation west business that's impacted by winter conditions. And obviously, our utilities business is heavily impacted by winter conditions. So the seasonality has maybe lessened a little bit, but it still exists in the construction business in Canada. And we probably never get away from that because even our civil business, to a small degree, impacts with winter. So I don't know, Jacob, if there's anything you want to add to that.
No. I mean, the only business we are doing that is not dependent on Q1 and weather is nuclear, basically. So it depends on the way we are piloting our activity between Bruce and Darlington.
All right. That's all for me. Thank you.
Thank you.
As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Maxim Sytchev with National Bank Financial. Your line is open.
Hi. Good morning, gentlemen.
Good morning.
Good morning.
Thanks.
Jean-Louis, I was wondering if you'd mind maybe commenting about what's out there in terms of concessions when it comes to opportunities. How's the market? What are you guys tracking? Yeah, maybe any call there. Thanks.
Yeah. I mean, basically, the former P3 big infrastructure market in Canada is decreasing a lot. There has not been I mean, this kind of scheme has not come to the market for the last 2-3 years. So we are chasing in the energy transition. You probably remember our Oneida deal. There are a few other deals that we are looking at about concession.
We are also looking at airport, mainly international. We have been just pre-qualified for a concession, I mean, in Turks and Caicos, which is quite a similar job than the one we did in Bermuda. We have just put our preliminary offer for also kind of DBFOM in U.S. Virgin Islands to airports. So we are very active also on this front. The market is changing, but I think between the energy transition and the airport, which is a little our sweet spot, we are able to find, I mean, new ways of growing with our concession business.
Okay. And I guess in terms of the competition, some of the bigger guys would not be, I presume, as interested in some of these smaller assets. Is that the right way to think about it?
Yes, exactly. I mean, we don't want to go when it's too small. We don't want to go when it's too big. I mean, I'm not going to go to JFK or something like this, but I think we have our sweet spot where we can perfectly manage the competition because we have our own competitive advantage.
For sure. Okay. Makes sense. And then just one clarification because when I look at Fluor's results and their references to Gordie Howe, I think they had a true-up on their EBITDA in Q4. So did you guys have a reversal in working capital or also an EBITDA in your results?
Hey, Max. No, it's interesting. We watched that as well, I guess, about a week or so ago. Well, we can't really comment on partners and competitors' accounting positions and policies. We did have a pickup in the quarter based on the Gordie Howe settlement that we announced basically in Q2 and Q3.
And recall, we had provisioned Gordie Howe downwards in Q2 and Q3 last year. And so our Q4 position reflected all of those adjustments already. So there were no impacts to us in the quarter from that on EBITDA or through the P&L. As Alistair referenced earlier, some of the working capital unwind was from that settlement along with the other projects. So while it was cash positive from the outcome, and we think we're now on the path to completion, there were no other impacts flowing through the P&L such as what we saw with Fluor.
Okay. I guess, yeah, I guess the negative impact from legacy contracts, it's all that LRT-related, right?
This quarter, correct. Yeah, the two LRTs.
Yeah. Okay. Okay. Okay. Okay. Perfect. That's it for me. Thanks so much.
One moment for our next question. Our next question comes from Sean Jack with Raymond James. Your line is open.
Hey. Good morning, guys. Just a quick question. Looking at the slide from the newest investor deck on Aecon Utilities and just thinking about potential revenue growth for next year, I see that you guys did a 13% CAGR over the last five years. Is that attainable for 2024? And if you don't mind kind of talking about some of the puts and takes that might go into that we'll look for next year?
Sure. Yeah. We saw a little bit of compression in the last quarter or so of last year, 2023, just as some of the major utilities and telco and gas and others had capital that occurred a little bit to the right. So that work was all still there, and we expect that to pick back up in 2024.
So I think from the four main areas that we focus on, we still got pretty good tailwinds in all of them: electricity, transmission, distribution from all of the elements we've talked to so far, and the energy transition, the grid hardening, storm response, all those sorts of areas, telecommunications, still quite steady, as I said, some pullback in the fourth quarter, but we expect that to increase again in next year. We've got renewables, in-home services, and other driving good growth, and gas as well.
So I think across all areas, we still see some pretty reasonable outcomes organically, and that also includes expansion of our programs in the U.S. We started from a smaller scale last year growing into a few telco and T&D opportunities. And then, of course, as we talk to, the real key of the strategy or the catalyst would be acquisitive growth along the way. So organically, I'd say what you've seen on a CAGR basis is quite achievable and maybe more. And from an M&A or inorganic perspective, that could catalyze further.
Okay. Yeah. Perfect. That's all for me. Thanks, guys.
Thanks, Max.
That concludes the question-and-answer session. At this time, I would like to turn the call back to Adam for closing remarks.
Great. Thanks very much. Thank you all for your attendance and participation today. As always, feel free to reach out to us at any time with further follow-up questions. We wish you a great rest of the day, and we'll chat to you next quarter. Take care.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.