Good morning. Thank you for attending today's Q2 2023 Aecon Group Incorporated earnings call. My name is Lauren, and I will be your moderator for today's call. There'll be an opportunity for questions at the end of the presentation. If you would like to ask a question, then please press star followed by one on your telephone keypad. It is now my pleasure to pass the conference over to our host, Adam Borgatti, Senior Vice President of Corporate Development and Investor Relations. Mr. Borgatti, 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 Jean-Louis Servranckx, President and CEO, and David Smales, 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 ask that the analysts keep to one question before getting back into the queue to ensure others have a chance to contribute. As noted on slide 2 of the presentation, listeners are reminded the information we're sharing with you today includes forward-looking statements.
These statements are based on assumptions that are subject to significant risks and uncertainties, and although Aecon believes these expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct. With that, I'll turn the call over to Dave.
Thank you, Adam, and good morning, everyone. I'll touch briefly on Aecon's consolidated results, review results by segment, and then address Aecon's financial position before turning the call over to Jean-Louis. Turning to slide 3, revenue for the second quarter of $1.2 billion was $44 million or 4% higher compared to the same period last year and is 8% higher on a year-to-date basis. Adjusted EBITDA of $17 million, a margin of 1.4%, compared to $39 million, a margin of 3.4% last year, and operating profit of $56 million compared to an operating profit of $5 million. Diluted earnings per share in the quarter of $0.38, compared to a diluted loss per share of $0.10 in the same period last year.
The improvement in operating profit and diluted earnings per share was largely due to an increase in other income of CAD 70 million, driven primarily by a CAD 38 million gain on the sale of Aecon's Transportation East business, or ATE, and a CAD 31 million gain on the sale of certain property and equipment, which more than offset the CAD 53 million negative impact of larger period-over-period margin adjustments related to legacy fixed-price projects. Reported backlog of CAD 6.9 billion at the end of the quarter, after removing CAD 447 million of backlog in Q2 related to the sale of ATE, compared to backlog of CAD 6.6 billion at the end of the second quarter of 2022. New contract awards of CAD 2 billion were booked in the quarter, compared to CAD 1.3 billion in the prior period.
Looking at results by segment. Turning to slide 4, construction revenue of CAD 1.1 billion in the first quarter was CAD 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 ATE in the quarter. In industrial operations, higher revenue was primarily due to increased activity on mainline pipeline work in Western Canada. In utilities operations, higher revenue was driven by an increase in telecommunications and high-voltage electrical transmission work. Partially offsetting these increases was lower revenue in nuclear operations from a lower volume of refurbishment work and in urban transportation solutions, primarily from a decrease in LRT project work.
New contract awards of CAD 2 billion in the second quarter, compared to CAD 1.3 billion in the same period last year. Backlog at the end of the quarter of CAD 6.8 billion, compared to CAD 6.5 billion at the same time last year. Turning to slide 5, adjusted EBITDA in the construction segment of CAD -4 million was CAD 38 million unfavorable compared to the second quarter of last year.
The decrease was driven by negative gross profit of CAD 31 million in the second quarter from a fixed price legacy project in civil operations, versus a gross profit of CAD 4 million in the same period last year from the same project, and by a negative gross profit of CAD 50 million from one of the four fixed price legacy projects in urban transportation solutions, compared to a negative gross profit of CAD 33 million from one of the other fixed price legacy projects in urban transportation solutions in the same period last year. Other than the impact of these fixed price legacy projects in the quarter, higher gross profit in the balance of the construction segment was primarily driven by improved results in urban transportation solutions.
At June 30, the remaining backlog to be worked off on these four projects was CAD 699 million, compared to CAD 1.1 billion at the end of 2022. The four legacy projects comprised 13% of consolidated revenue in the second quarter and 10% of backlog at June 30. Compared to 16% of consolidated revenue in the full year 2022, and 17% of backlog at December 31st. Turning to slide 6, concessions revenue for the second quarter was CAD 27 million, compared to CAD 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, but continued to recover in 2022 and into the first half of 2023 from the more severe impacts experienced in 2020 and 2021.
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 concession segment of CAD 28 million, compared to CAD 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 7. At the end of the second quarter, Aecon had a committed revolving credit facility of CAD 600 million, of which CAD 188 million was drawn and CAD 11 million utilized for letters of credit.
On December 31, 2023, convertible debentures with a face value of CAD 184 million will mature. We expect to repay these debentures at maturity or before. At this point, I'll turn the call over to Jean-Louis.
Thank you, Dave. The significant impact on the four large fixed-price legacy projects being performed by joint ventures, in which Aecon is a participant, continue to be felt in our results. Aecon and our partners are working toward resolution and compensation for the impact these projects have faced, with the respective project owners focused on reaching fair and reasonable settlement agreements as we move towards project completion in each case. As I've said before, this will take some time, but we are on it constantly and making progress. Three of the four projects are currently expected to be substantially complete by dates between late 2023 and the middle of 2024, the fourth is currently expected to be substantially complete during 2025. Turning to Slide 9, demand for Aecon's services across Canada continues to be strong.
While volatile global and Canadian economic conditions are impacting inflation, interest rates, and overall supply chain efficiency, those factors have stabilized to some extent and have largely been and will continue to be reflected in the pricing and commercial terms of Aecon's recent and prospective project awards and bids. Results have been negatively impacted by the four legacy projects in recent periods, undermining positive revenue and profitability trends in the balance of Aecon's business. Turning to slide 10, with backlog of CAD 6.9 billion at June 30th, 2023, and recurring revenue programs continuing to see robust demand, Aecon believes it's positioned to achieve further revenue growth over the next few years. In the second quarter, Aecon was awarded a number of projects that were added to backlog, including delivery of the Deerfoot Trail Improvement Project in Alberta.
Apologies, it appears we have lost connection with Jean-Louis, Aecon. Please stand by while we try to reconnect him.
Thank you.
The Scarborough Subway Extension Project and the Darlington New Nuclear Project will only be reflected in backlog at a successful conclusion of the lengthy development phases. Aecon, including joint ventures in which we're a participant, is also pre-qualified on a number of project bids due to be awarded during the next 12 months, and has a considerable pipeline of opportunities to further add to backlog over time. Coming back, sorry for this. Trailing 12 months recurring revenue of CAD 1.1 billion was up 40% versus the prior period and 74% versus 2 years ago. Utilities operations and contributions from the GO Expansion On-Corridor Works and Scarborough Subway Extension Project during the respective development phases were the primary drivers of this growth.
Utility operations and further advancement from these projects, as we continue through the development phases, are expected to contribute to future growth in recurring revenue. The Concessions segment is also expected to see airport traffic in Bermuda continue its recovery in 2023 and 2024. Turning to slide 11, Aecon continues to support the energy transition to build and operate sustainable infrastructure. In the second quarter, the Oneida Energy Storage Project achieved financial close, with Aecon Concessions as an 8.35% equity partner. Earlier this year, Aecon was awarded a CAD 141 million EPC contract by Oneida Limited Partnership to build this 250 MW, 1,000 MWh advanced stage, grid-connected battery storage project, representing the largest clean energy storage project in Canada.
Projects such as Oneida Energy Storage, GO Expansion On-Corridor Works, Scarborough Subway Extension, and the Darlington New Nuclear Project demonstrate the path Aecon is on to embrace the opportunities linked to decarbonization, sustainability, and the energy transition. Turning to slide 12. In addition to large-scale energy projects, we continue to expand our portfolio with Aecon's green energy services through residential and commercial renewable energy projects. This also includes strategic partnerships with companies to provide electrification and charging infrastructure that enables municipal transit agencies and other corporate fleets to power their vehicles using clean energy. We continue to work towards reducing our own emissions and have been switching our operations to more sustainable fuels and piloting new technologies, such as the use of hydrogen generation, renewable power on construction sites, and electric equipment. Turning to slide 13.
With strong demand, growing recurring revenue program, and diverse backlog in hand, Aecon is focused on achieving solid execution on its projects and selectively adding to backlog through a disciplined bidding approach that supports long-term margin improvement in the Construction segment. In the Concession segment, in addition to expecting an ongoing recovery in travel through the Bermuda International Airport through 2023, there are a number of opportunities to add to the existing portfolio of Canadian and international concessions in the next 12 to 24 months, including projects with private sector clients that support a collective focus on sustainability and the transition to a net zero economy. The GO Expansion On-Corridor Works project and the Oneida Energy Storage Project noted above are examples of the role Aecon's Concession segment is playing in developing, operating, and maintaining assets related to this transition. Thank you.
We will now turn the call over to analysts for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. Our first question comes from Frederic Bastien from Raymond James. Frederic, please go ahead.
Good morning.
Good morning.
Guys, we all knew there were risks residing in these four legacy fixed-price projects. I'm really surprised by the extent of the losses you posted in Q2. My question is, what changed in these in the short three months since you last reported to make you take that significant of a provision?
Yes, Frederic, I mean, you're right. These legacy projects are a challenge, and the dynamics of the negotiation, especially when we are reaching up to the end of this project, are extremely complex. Those are not negotiation about one parameter. I mean, we tell our client, "Due to modification in the condition of execution of our contract, you owe me X," and the client answer, "In fact, I'm gonna compensate for Y." I mean, there's a lot of parameters, about the risk taken out, about eventual modification to the PA, about the trade-off between cash and, more long-term additional revenue. We also have to deal with different partners on each of joint venture. We're not alone. We are dealing with different client, with different decision-making process.
All this is extremely complex, this explain that the outcome of this negotiation cannot be perfectly forecasted dollar to dollar. What is sure is that every day on this whole project, we are negotiating with our clients, and every day we are progressing up to the final of this project. You have probably noticed that the backlog associated with this project now is under CAD 700 million. When you compare it, I mean, to our declared backlog, which is CAD 6.9 billion, or with our quasi backlog, when you add the three Progressive Design-Build project, which will give us something like CAD 7 billion to CAD 8 billion of additional, it has now become a very small portion of our backlog.
That small portion of a backlog, I mean, it's a bit of a black hole. We just don't know, you know, where things will land. It's very difficult for us on the street to figure out what, you know, future projections will be.
Yes. What is sure is that every day that pass, I mean, with this project, is a victory because we have less in our backpack to execute.
Okay, thank you.
Thank you. Our next question comes from Chris Murray, from ATB Capital Markets. Chris, please go ahead.
Yeah, thanks, guys. Good morning. Maybe, you know, following on, on that question, maybe a different way to think about it. You know, what you've been telling us at least for the last few quarters, is that, you know, you thought you had maybe the reforecast behind you, we'll be operating at lower margins. You know, like, how should we be thinking about margins through the completion of this at this juncture? You know, generally, I hear what you're saying about, you know, the backlogs, outside of these projects, these projects kind of feel like they're gonna be driving your margin profile for the next year or so. Just how should we be thinking about, you know, construction margins on a go-forward basis?
Yeah. 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. If those forecasts and everything we've taken into account play out the way we as a joint venture in each case envisages them, then the EBITDA margin effectively from those four projects should be 0 on a go-forward basis if they're in line with projections. You know, overall EBITDA margins, you know, if you look at our numbers 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 and 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 in the rest of the business. We expect that trend to continue for the base business, and as I said, the legacy projects, in theory, should be zero.
Okay, I guess we'll have to work with that. Yeah, I guess moving on, the, you know, Misha, I don't know if who wants to take this one, but just, you know, the entire government's been talking a lot and some of the other folks in Ontario about additional nuclear development, and certainly you're well-positioned there. You know, I guess a couple questions. You know, can you maybe frame the scale of the opportunity that's here? I guess as a piece of this, I mean, if everything that everyone's talking about, you know, additional small nuclear reactors, large reactors, I mean, if that all kind of comes into play, is there a limit to how large or how much nuclear exposure you folks can actually accommodate?
Yeah, I can take this one. Nuclear is a long-term industry. It means that you don't decide on Friday that you're going to build a reactor and begin the works on Monday. I mean, the land has to be ready, all the environmental license, I mean, the technological license, the capacity to design, build, and operate. Everything is a lengthy process. What we know at the moment is that you've seen that we have booked a little more than CAD 1 billion, I mean, of new orders during the quarter. For Bruce, we now have the totality of the six reactors under Aecon execution. At OPG, we still have two units to go, each unit being more or less three years of work, they can interlap.
Just as a signal of lessons learned and the way we are progressing, you probably noticed that the second unit at OPG, Unit 3 was just delivered and substantially completed by our team 169 days ahead of schedule, which just saw the way we master now all this rehabilitation. Evidently, there is a decision coming about the refurbishment of four units at Pickering. It is probably going to come during the Q3 2023. There is one year to one and a half years of preparation and early works, and then we will begin to work if we are awarded those job. All this take time. Regarding the Small Modular Reactor, we have entered in a 6-year alliance with the GE Hitachi and SNC for the first one.
You probably have noticed the announcement that there will not be one, but four Small Modular Reactor under OPG in Ontario. All this will be phased and will take time. Only for this, we are speaking of an horizon of something like 15 years, without even talking about the big units that can be developed at Bruce. We are not worried about a sort of ceiling in our capacity. What is more important for us is to be sure that all the teams that we have been training, recruiting, developing, are going to stay with us, and that they will not be all within the development of all those, I would say, nuclear program.
Okay, that's helpful. Thank you.
Thank you. Our next question comes from Benoit Poirier from Desjardins Securities. Benoit, please go ahead.
Good morning, everyone. was wondering if you could provide details about the potential charge to be taken in the second half, the risk behind that on those four legacy projects, given that historically, you've been more heavy in the second half? and also more granularity about the potential settlements that you're looking for, and maybe the remaining 40% exposure to your backlog to fixed price, the risks behind the... I know projects are much smaller in terms of size, but wondering if there's any risk with respect to the 40% remaining exposure to the backlog. Thanks.
Yeah, I mean, if you go back to my previous answer, you know, 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, and they're all based on forecasts through to the end of the job. With that positioning, the, you know, it's not a case of being able to say, "Okay, now expect this or this." It's if those forecasts are correct, then the impact on those projects on a go-forward basis from a profitability perspective should be 0.
Having said that, you know, as we flag now for a fairly lengthy period of time, there will remain risks until we get to the end of these projects. It's just the nature of the complexity of the situation, as Jean-Louis described earlier. In terms of the balance of the backlog, as you've seen, the mix of work has been shifting fairly significantly over the last 12 to 18 months, away from fixed price into more non-fixed price work. As you know it, there is still backlog in fixed price. We're very comfortable with those projects that, you know, we called out those 4 legacy projects for a reason.
The rest of the work that we're doing, execution is going well, and it's all reflected in the margins you're seeing over the last few quarters, which, as I said earlier, we expect that trend to continue in terms of positive margin development. No, we don't see risk in the rest of the portfolio.
Okay, thank you.
Thank you. Our next question comes from Naji Baydoun from Industrial Alliance Securities. Naji, please go ahead.
Hi, good morning. Can you maybe talk a little bit more about what additional compensations or measures that you're pursuing for these fixed-price projects? I understand it might take a bit of time, and how that might impact the margin outlook for the rest of this year. I think your previous commentary was that margins could potentially be up year-over-year for 2023. I'm just wondering if that's still the case.
You're speaking about the legacy project? Your question is about.
Correct, yes.
Yes. We are finalizing the execution of three of those projects. The 4th one will go to 2025. We are negotiating it with our clients. There is no doubt with all our clients that those projects have suffered from heavy modification and need to be compensated. As I've explained, the dynamic of the negotiation are extremely complex, but I can tell you that on two of those projects, the amounts on the table and the negotiation are quite substantial. The issue are all the parameters attached to the additional revenue, and this is where we are still working, and we expect some further settlement in the future, in the near future. They are extremely difficult and complex negotiations.
Okay, and just, maybe, if we sort of look at the underlying business ex these projects, can you just maybe confirm what the revenue and EBITDA would have been on a normalized basis, outside of the impact from these projects? I'm just trying to get a sense of what the rest of the... How the rest of the construction business is performing.
Yeah, I will begin, and maybe David will give you a little more information. I mean, as you have noticed, the EBITDA without those legacy projects for Q2 would have been CAD 98 million, which is extremely strong. Trailing 12 months, EBITDA, without the legacy project, would have been CAD 375 million. When you know the revenue we have, it's extremely high in the industry, it's probably one of the best one. It means that we think that our strategy that we have been developing for the last four years is the right one, around balancing our activity, about strengthening our execution capacity. Because the underlying, I mean, the normal business, I would say, have never been that strong.
In addition, as I've already explained, we have tightened a lot, everything related with the first weeks of new projects. As I said, I mean, we have CAD 6.9 billion of backlog. We have CAD 7 billion of additional quasi backlog associated with our three Progressive Design-Build projects: Oneida, Scarborough, and Small Modular Reactor. It just mean we're not starving at all. We are in a very favorable position to choose the project, the client, the partner, the timing that best fit with our capacity. This is why we are quite optimistic with all those parameters about Aecon after those legacy projects are definitely behind us.
Naji, just to add to that, Naji, you also asked about revenue and margin impact, to work out the impact on the base business. As Jean-Louis said, the EBITDA impact was CAD 81 million. Excluding those legacy projects, the rest of the business generated CAD 98 million in EBITDA. Revenue attached to those legacy projects in the second quarter was approximately CAD 150 million. If you exclude the legacy projects, altogether, then the EBITDA margin on a consolidated basis in the second quarter would have been 9.6%, as opposed to the 1.4% reported.
Yeah, that's exactly what I was looking for. It seems like there's some very strong organic growth tailwinds, and the margin is pretty healthy on a normalized basis. I guess you just got to work through these impacts for the next few quarters. Maybe just one last question for me. You got the roadbuilding sale completed and the Bermuda minority sale coming up next. Just any updates on use of proceeds and where you expect sort of to end the year in terms of the balance sheet and the leverage profile?
Yes. As you know, the transportation sale closed in Q2. We expect the Bermuda sale to close shortly. We've now received all final approvals, it's just a question of paperwork, basically backwards and forwards between lawyers. It should be closed in the next couple of weeks, that will contribute $128.5 million in terms of U.S. dollars, approximately CAD 170 million to CAD 175 million to the cash position in Q3. Obviously, we have the convertible debenture maturing at the end of the year. The proceeds from those two transactions give us lots of flexibility in terms of options to deal with those converts.
We'll continue to monitor the market at the same time, to decide if we want to do something in terms of a separate issue, but otherwise, we'll use the balance sheet to deal with those converts. I guess in terms of leverage profile.
Thank you very much.
By the end of the year, 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. Appreciate it. Thank you.
Thank you. Our next question comes from Jonathan Lamers, from Laurentian Bank Securities. Jonathan, please go ahead.
Thank you. Jean-Louis, just to follow up on your earlier answer about settlement compensation payments on these legacy projects. You know, recognizing that negotiations are complex, do you have visibility today to whether these might be received later in 2023 or 2024? David, you know, if they do fall into 2024, would you expect that to be a positive free cash year?
I will take the first part of the answer. We are working hard so that part of this negotiation can finalize before the end of the year. Part of the payment can be done before the end of the year. It's quite uneasy. Usually, payments are saved. They are not always, I would say, bullet paid. All this is part of the negotiation, so it's difficult to give more precise answer. What is sure is that we negotiate with our clients every day. We are pushing to have the right trade-off between early payments and maximizing additional revenue.
Jonathan, in terms of, if those settlements were in 2024, then yes, I would expect 2024 to be a positive free cash flow year. Obviously, the working capital build attached to those projects has impacted cash flow over the last 18 to 24 months. As that unwinds, 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?
Some of that is attached to these claim settlements that we're talking about and the four legacy projects. Some of it is just attached to some of the timing of milestones on other projects as well as just the overall growth in revenue over the last 12 months. It's a combination. We'll see some usual seasonality in that number, but as we reach various settlement agreements and as we hit milestones on some projects that are underway, then, yes, that number would we would expect that number to come down over the balance of this year and also into the first part of next year.
Okay, thanks for your comment.
Thank you. Our next question comes from Ian Gillies, from Stifel. Ian, please go ahead.
Morning, everyone.
Good morning, Ian.
With respect to the four fixed-price legacy contracts, moving ahead, are you still seeing much in the way of change orders or incremental work that will drive more unbilled revenue? If that's the case, can you maybe just talk a little bit about how you're managing that risk so you can make sure you recover that revenue?
I would tend to say that we are not expecting additional work or variation order or. I mean, it's not the issue anymore. The design of this project is over. The schedule is now stabilized. The issue is just about agreeing on a fair and reasonable compensation and the terms of payment associated with this compensation with our client. I do not see developing on these four legacy projects, additional work that we should do, that we don't know, and that would not be recognized. All this now is stabilized.
Okay. That's very helpful. 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?
Yeah, 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 are in some cases with the same clients we're negotiating with now. As we secure work and pre-qualify on work, we haven't seen any change in the dynamics around our ability to pursue the projects that we think make sense for us, whether they be in a concessions model, or a Progressive Design-Build model or any other kind of models. Regardless of the client as well. No, we haven't seen any restrictions on our ability to pursue work.
Okay, thanks. That's helpful. I'll turn it back over.
Thank you. Our next question comes from Maxim Sytchev, National Bank Financial. Maxim, please go ahead.
Hi, good morning, gentlemen.
Hi
... I had a question, maybe in relation to your, your. Good morning, gentlemen. In terms of your thoughts, when it comes to the dividend payout ratio, whether as a function of net income or free cash flow, because, I mean, leverage likely is probably gonna go up. I mean, JV cash, sort of stripped out, I mean, standalone cash is pretty low, despite obviously the influx from Bermuda. I'm just trying to think how you're balancing, you know, that risk on a going-forward basis, especially as some of the difficult projects, you know, have some time to run through. Yeah, maybe any updates on that front would be super helpful. Thank you.
Yep. I mean, we expect to see net leverage reduce going forward with the proceeds from Bermuda settlement on claims as they roll through the numbers, and as we generate cash flow in the rest of the business, which, as we've talked about, is performing well. From that perspective, no concerns with where we're at in terms of level of dividend payment. We've had a pretty consistent program now over a long period of time, which has been through various cycles, and we try and retain a fairly consistent approach, and there's nothing in our outlook that would cause us to change that philosophy.
Is that stress tested for, again, another potential sort of negative reforecast in terms of projects? Or again, how are you thinking about it? Like, I mean, I understand sort of the base case scenario, but, yeah, maybe any incremental thoughts on that.
Yeah, of course. I mean, whenever we talk about capital allocation or use of balance sheet for any purpose, we're always looking at a range of scenarios. We're also always looking at the various ways things can play out. I mean, it's just, it's obviously part of prudent planning and decision-making. Yes, you can assume that any decisions we make around capital allocation are appropriately stress-tested.
Okay. Then maybe just to follow up on sort of the non-cash working capital dynamic, again, like, what is your visibility maybe for the remainder of the year and in 2024 sort of the legacy, quote, unquote, "projects" are coming to fruition? Maybe any help on that front would be great, thanks.
Yeah, I mean, as Jean-Louis talked about earlier, the timing on these is harder to predict. We do expect that any settlements reached will be positive to overall working capital. We should see some benefit from a recent settlement in our Q3 working capital position. We'll also have some seasonality in Q3 because it's our highest revenue quarter that will offset that to some extent. If we're able to reach additional settlements through the balance of the year, I expect some of the working capital build. Well, not just expect, but some of the working capital build we've seen in the first 6 months of this year will unwind.
Through 2024, the view is that working capital should be a contributor to overall cash flow.
Okay. That's great. I think, obviously, a lot of discussion in terms of sort of infrastructure-related projects, any updates on your pipeline and sort of the legacy, you know, K+S, sort of negotiations? That would be helpful. Thank you.
Can you repeat the question, Max? You're just breaking up there.
Sorry, I apologize. I mean, there's a lot of discussion obviously around the infrastructure projects, but I was wondering if you can provide any comments, if you can, on the midstream project that you have and the legacy mining K+S, if there's any updates on the timelines and negotiations with the clients there as well. Thanks.
I'll talk to K+S and Jean-Louis will take CGL. In terms of K+S, no real update. You'll see the language in the disclosure is the same as the prior quarter. We continue to go through the legal process with various rounds of discovery, and we still expect that to end up in court as a hearing in late 2024, is our best estimate at this point in time. Other than that, no nothing changed from previous quarters.
Yeah, regarding CGL, Maxim, what, where are we at the moment? You probably remember, we had 2 spreads. We finalized the first one, spread 4. Spread 3, we have an agreement with CGL, our client, regarding cash support to finish the job. We are aiming to finish it around the end of September. I mean, our productivity on site is doing quite well. We are now running to the last kilometers of this spread 3. We are, at the same time, under arbitration with our client, but also under discussion and negotiation ongoing around a certain number of topics.
I imagine that if the arbitration is, is the way that is decided to settle our issues, then the end of the story is probably going to be between end 2024 and 2025. From the moment we reach mechanical completion around the end of September, we may also, if it is the common will of our client and ourselves, find a settlement, and this could come much quicker. It mean in the first half of 2024. At the moment, we are focused on working as efficiently as we can and preserving our rights and capacity for the ongoing arbitration.
Okay, super helpful. Thank you very much, Jean-Louis.
Thank you. Our next question comes from Michael Tupholme from TD Securities. Michael, please go ahead.
Thank you. Good morning. Similar to the figures you provided earlier, Dave, on 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 so we can get a comparison? I don't think we have the revenue impact from last year. Maybe you can also just clarify what the EBITDA would have been.
Yeah, so Q2 last year, in terms of EBITDA, was reported at 38.5%. That was after adjustments on the four legacy projects or impact of the legacy projects of 28.2%. Effectively, around CAD 60 million, CAD 66 million to CAD 67 million of EBITDA. From a revenue perspective, I'm going from memory here, but I think the impact to those projects was around CAD 200 million. We can certainly follow up on that and provide you with the exact number, but it was somewhere in that, in that ballpark.
Okay, that's helpful. Thank you. With respect to the revenue contribution from the four legacy fixed-price JV projects, the CAD 150 million this quarter, that's a bit higher than the decline in backlog in those projects, with the decline in backlog quarter-over-quarter was closer to CAD 100 million. I think this was sort of asked earlier, it doesn't sound like you expect the sort of additional revenues over and above what you currently, you know, have in backlog. How do we sort of understand the discrepancy there in the second quarter? Was that all related to one of the projects, or was it spread across several? Just trying to get a sense for what happened there in the quarter.
Yeah. It's primarily related to the civil project, where, as Jean-Louis said, there's lots of different parameters around these negotiations. As we go through various discussions, there's various items that the client takes off the table in terms of obligations. There's things the joint venture agrees to do, and that can be things like acceleration of works or, you know, which means adding more people, more shifts over time. Lots of different factors can go into that, which can increase the cost. Therefore, that's what you see with respect to that civil sector project and the margin adjustment in the quarter. That generates, that effectively goes through that backlog number.
Okay, got it. Just lastly for me, with the Bermuda sale expected to close in a few weeks, I know you've, you've disclosed and reiterated the sale price. I think in Canadian dollar terms, it works out to around CAD 170 million. Is that how we should think about the net number, or are there some costs that we need to think about such that the net proceeds would be something lower than that?
Yeah. There's nothing in terms of adjustments for debt or cash or anything like that, just normal transaction type fees, primarily. Yeah, no, not like ATE, where we transferred all our equipment leases and equipment financing as part of the sale, and that impacted the proceeds. There's nothing of that nature with Bermuda.
Okay. All right. Okay, thank you.
Thank you. Our final question comes from Sabahat Khan from RBC Capital Markets. Sabahat, please go ahead.
Great. Thanks, and good morning. I guess just thinking about those 4 projects, you did talk about, you know, the midstream one, where you're still in discussions. I guess that seems to be the one, based on your kind of commentary, where maybe there hasn't been a settlement or detailed discussions. Is that the one where we should think if there is any further unknown risk, it's on that project? Or is there any? You know, even when you risk rank those 4 projects, how you think about where there might be more risk versus less?
I mean, I think the positions are I mean, I don't think Jean-Louis was suggesting there aren't ongoing discussions with our client on that project. There are. You know, I think there's a pretty good working relationship with the client around the focus on completing the project and all the elements that feed into closing this out successfully. I think we're 100% aligned on that, you know, as part of that, we talk about commercial issues too. As Jean-Louis said, this is an arbitration process right now, but it may not end up being resolved through arbitration. It may end up being resolved through discussions and negotiations.
We're as active on that project as we are on any of the others in terms of risk ranking them. Again, you know, if you, if you step back and say, you know, "What do these positions represent at the end of Q2?" They represent our best view of every one of these projects. You know, they're not risk-ranked. Each one of them has a position that we feel is the right position as a joint venture and as Aecon, as part of that joint venture, feel that is gonna be the final position.
Okay, great. It seems like in the quarter, there were some PP&E sold in Q2. As you look ahead, are there any other sort of excess assets that might be disposed of in future quarters or anything that might be up for sale, or we should keep an eye on?
No, I mean, in terms of those gains on a couple of properties, I mean, that was just a coincidence that they were both in Q2. One is in our industrial sector, really a consequence of kind of the pre-pandemic, sorry, post-pandemic world, where we decided in the industrial group, we needed less office space. We had an office in Brantford, Ontario, an office in Cambridge, Ontario, and we consolidated those two into one location, and that freed up a property that we own to be sold. The other property is an equipment facility. We historically have been long-term leases of that facility. Our landlord was selling the property in 2019. We had a right of first refusal.
We purchased the property in 2019 to be able to effectively secure the long-term home for that equipment division. This year, as part of the sale of ATE, which has a large amount of equipment going with that sale, we decided we may not be long-term in that facility anymore. It may be too big for us long term, we took the opportunity to sell the property, we will lease for a period of time while we evaluate our options. No, I mean, typically, we're not owners of real estate. We don't aim to tie up capital in owned buildings and properties. Really, the only real estate we tend to own is aggregates and things like that.
They were both sales that just made sense based on where we are with those two businesses.
Okay, just one last one. You know, you mentioned the, the rest of the business, excluding these four larger projects, and the margin you indicated is sort of in the 9%, 9.5% range. That's obviously quite high relative to the run rate margins over the last little while. I guess, what's the implication there, that these four projects maybe have been a bit of a drag, and when they end, the margins for the overall business are a lot higher? Or, is it just, like, the rest of the base business isn't seeing maybe losses that you might have seen in the past? Just, just trying to get context around that 9+% number.
Yeah, no, I mean, I think you can assume that the four legacy projects have been dragging. I mean, even, you know, obviously, this quarter, we've got some larger adjustments, but even in quarters where we haven't had adjustments, they've still tended to be, you know, zero margin-type projects on revenue. They dragged down the overall margin on an ongoing or have been for a period of time now. As we look at the rest of the business, it's. There's nothing in there, as I talked about earlier, that is really concerning us from a margin or a risk profile perspective.
Without those four legacy projects, we do expect margins to be going forward, more representative of where the base business is today.
Maybe I can add some.
Great.
more general thoughts about it. I mean, I. Obviously, we do understand the concern about the legacy project, and you can imagine that at the management team level of Aecon, the focus we have on finalizing those negotiations, those compensation on the job. I'm inviting you to have a look, not only to what would have been this quarter, Q2 2023, without the legacy project, we have discussed among two, three questions, I mean, a few minutes ago about it. I mean, the CAD 98 million equivalent EBITDA, and to compare it with Q2 2022.
Not only to look at this quarter, but look at everything we have been implementing, during the last two to three years, to realize that we are steadily delivering on everything we said we would do to position Aecon for the future, on a much more favorable landscape in terms of contract model, in terms of de-risking of client, de-risking of modes of payment, fixed price, and variable price in terms of recurring revenue. In terms of markets, I think we have done quite a lot of efforts with our Turkish acquisition, and we will go on with this.
Regarding also how to strengthen our team in front of the energy transition, in front of the wave of all the sustainable projects, it means that when you have a look at the backlog we have and all those efforts, is why I say, I mean, it's quite interesting to try to imagine what will be Aecon in the years to come.
Great. Thanks very much for the color.
Thank you. That is now the end of the Q&A session, I will now hand back over to Adam Borgatti for closing remarks.
Thank you, Lauren, and appreciate everyone for your time today. Feel free to follow up, as always, with any questions, and have a great rest of your day.
This concludes today's call. Thank you for joining.