Aecon Group Inc. (AEGXF) Q2 2023 Earnings Call Transcript

Aecon Group Inc. (OTCPK:AEGXF) Q2 2023 Earnings Conference Conference Call July 27, 2023 9:00 AM ET

Company Participants

Adam Borgatti – SVP, Corporate Development and IR

Jean-Louis Servranckx – President and CEO

David Smales – EVP and CFO

Conference Call Participants

Frederic Bastien – Raymond James

Chris Murray – ATB Capital Markets

Benoit Poirier – Desjardins Securities

Naji Baydoun – Industrial Alliance Securities

Jonathan Lamers – Laurentian Bank

Ian Gillies – Stifel

Maxim Sytchev – National Bank Financial

Michael Tupholme – TD Securities

Sabahat Khan – RBC Capital Markets

Operator

Good morning. Thank you for attending today’s Q2 2023 Aecon Group Incorporated Earnings Call. My name is Lauren, and I’ll be your moderator for today’s call. There will opportunity for questions at the end of the presentation. [Operator Instructions]

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.

Adam Borgatti

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 have posted a slide presentation on the Investing section of our website, which we will refer to during this call. Following our 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 that 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. Although Aecon believes the expectations reflected in these statements are reasonable, we can give no assurance that these expectations will prove to be correct.

With that, I’ll now turn the call over to Dave.

David Smales

Thank you, Adam and good morning, everyone. I’ll touch briefly on Aikens, 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 $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 was $17 million, a margin of 1.4% percent, 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 cents 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 $70 million, driven primarily by a $38 million gain on the sale of Aecon’s Transportation East business, or ATE and a $31 million gain on the sale of certain property and equipment, which more than offset the $53 million negative impact of larger period-over-period margin adjustments related to legacy fixed-price projects.

Reported backlog at $6.9 billion at the end of the quarter after removing $447 million of backlog in Q2 related to the sale of ATE, compared to backlog of $6.6 billion at the end of the second quarter 2022. New contract awards of $2 billion were booked in the quarter, compared to $1.3 billion in the prior period.

Now looking at results by segment, turning to Slide 4, construction revenue of $1.1 billion in the first quarter was $35 million or 3% higher than the same period last year. Revenue was higher in civil operations, driven by an increase in major projects in both Eastern and Western Canada and road building construction, work in Western Canada, partially offset by a lower volume of road building construction work in Eastern Canada, as a result of the sale of ATE in the quarter.

In industrial operations higher revenue was primarily due to increased activity on mainline pipeline work in Western Canada. And in utilities operations, higher revenue was proven 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 2 billion in the second quarter, compared to $1.3 billion in the same period last year. Backlog at the end of the quarter of $6.8 billion, compared to $6.5 billion at the same time last year.

Turning to slide 5, adjusted EBITDA in the Construction segment of negative $4 million was $38 million unfavorable, compared to the second quarter of last year. The decrease was driven by negative gross profit of $31 million in the second quarter from a fixed price legacy project in civil operations versus a gross profit of $4 million in the same period last year from the same project.

And by a negative gross profit of $50 million from one of the four fixed price legacy projects in urban transportation solutions compared to a negative gross profit of $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 $699 million, compared to $1.1 billion at the end of 2022.

The four legacy projects, comprise 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 $27 million, compared to $19 million in the same period last year, primarily due to an increase in airport operations at the Bermuda International Airport. Bermuda continues to operate at a reduced volume, compared to pre-pandemic levels but continue 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 $28 million,, compared to $17 million in Q2 last year, primarily due to results from the Bermuda Airport and an increase in management and development fees.

Turning to Slide 7, at the end of the second quarter, Aecon had a committed revolving credit facility of $600 million, of which $188 million was drawn and $11 million utilized for letters of credit. On December 31, 2023 convertible debentures with a face value of $184 million will mature and we expect to repay these debentures at maturity or before.

At this point. I’ll turn the call over to Jean-Louis.

Jean-Louis Servranckx

Thank you, Dave. The significant impacts 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 date between late 2023 and the middle of 2024 and 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 stronger, while volatile global and Canadian economic conditions are impacting inflation interest rate and overall supply chain efficiency, loose 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.

However, results have been negatively impacted by the four legacy projects in the recent periods undermining positive revenue and profitability trends in the balance of Aecon’s business.

Turning to Slide 10, with a backlog of $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 Improvements project in Alberta. Trailing 12 months recurring revenue of $1.1 billion will up 40% over the prior period and 74% versus two years ago.

Utilities operations and contributions from the GO Expansion On-Corridor Works and Scarborough Subway Extension projects during the respective development phases were the primary drivers of this growth. Utility operations and further advancements from these projects as we continue through the development phase are expected to contribute to future growth in recurring revenue.

The Concessions segment is also expected to see airport traffic in Bermuda continuing to recover 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, Oneida Energy Storage project achieved financial goals with Aecon concessions has an 8.35% equity partner.

Earlier this year, Aecon was awarded a $141 million EPC contract by Oneida limited partnership to build these 250 megawatt, 1000 megawatt hour advanced stage grid reconnected battery storage project, representing the largest clean energy storage project in Canada.

Projects such as Oneida Energy Storage GO Expansion ongoingworks,Scarborough Subway Extension, and the Darlington New Nuclear project demonstrates the path Aecon is on to embrace the opportunities. linked to decarbonize ation, 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 feeds to power the vehicles using clean energy.

We continue to work towards reducing using our own emission and are being switching our operations to more sustainable fuels and piloting new technologies, such as the use of hydrogen generation, renewable power on construction site, and electric equipment.

Turning to Slide 13, with strong demand, growing recurring revenue program and divergent 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 Concessions segment, in addition to expecting an ongoing recovery in travel, through the Bermuda International Airports in 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.

With the GO Expansion On-Corridor Works project and 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 now turn the call over to analysts for questions.

Question-And-Answer Session

Operator

[Operator Instructions]

Our first question comes from Frederic Bastien – Raymond James. Frederic, please go ahead.

Frederic Bastien

Good morning.

David Smales

Good morning.

Frederic Bastien

Yeah, as we all knew there were risks, Thanks, hi. As we all knew there were risks residing in these four legacy fixed-price projects, but I’m really surprised by the extent of the losses you posted in Q2. So my question is, what change in these short three months since you last reported to make you take that significant of a provision?

David Smales

Yes, Frederic you’re right these negative projects are a challenge and the dynamics of the negotiation, especially when we are reaching up to the end of those projects are extremely complex. These are not negotiation about one parameter. I mean, we tell our clients due to modification is a condition of execution of our contracts. You or me ex and the client answer, in fact, I’m going to compensate for volume.

I mean, there’s a lot of parameters about the risk taken out, about an entry modification to the PA about the $20 between cash and more long-term additional revenue. We also have to deal with different partners or each of those joint ventures. We are not alone. We are dealing with different clients. We have decision-making process. All this is extremely complex and this explains that the outcome of those negotiations cannot be perfectly forecasted dollar-per-dollar.

What is sure is that, every day on the four projects, we are negotiating with our clients and every day we are progressing To the final project of those projects you have probably not seen that the backlog associated with those projects now is under $700 million, when you compare it to our the clear backlog which is 6.9, or, with our quality backlog when you add the three progressive design build projects, which will give us something like $7 billion to $8 billion of additional. It has now become a very small portion. of our backlog.

Frederic Bastien

But that small portion of a backlog in asset it’s a bit of a black hole we just don’t know where things will land. It’s very difficult for us in the street to figure out what future projections will be.

David Smales

What I show is every day, but perhaps I mean, those projects is a victory because we have less in our backpack to execute.

Frederic Bastien

Okay. Thank you.

Operator

Thank you. Question comes from Chris Murray from ATB Capital Markets. Chris, please go ahead.

Chris Murray

Yes, thanks guys. Good morning. So maybe, following on that question, may be a different way to think about it. What you’ve been telling us at least for the last few quarters is that, you thought you had maybe the reforecast behind you but do operating at lower margin, now, like how should we be thinking about margins through the completion of this at this juncture.

Jean-Louis, here what you are saying the backlogs outside of these projects, but these projects are – kind of feel like they are going to be driving your margin profile for the next year or so. So, just how should we be thinking about Construction margins on a go forward basis?

David Smales

Yeah, so Chris, in terms of the legacy projects, the position we take at the end of each quarter is based on everything we know at that point in time. And so, if those forecasts and everything we’ve taken into account play out, the way we, as a joint, venture in each case visits them, then the EBITDA margin effectively from those four projects should be zero on a go-forward basis if they’re in line with projections.

And then, EBITDA margins, if you look at our numbers over for Q2 and over the last 12 months, excluding the impact to the legacy projects, you can see those margins has 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 are seeing that in the numbers in the rest of the business. So, we expect that trend to continue for the base business and as I said, the legacy projects in theory should be zero.

Chris Murray

Okay. I guess, we’ll have to look at that. Yes, I guess, moving on the major – I don’t know who want to take this one, but just, the entire government’s been talking a lot and some of the other folks in Ontario about additional nuclear development and certainly you are well positioned there. I guess a couple questions, can you maybe frame the scale of the opportunity that’s here? And I guess, as a peak of this, I mean, that everything that everyone is talking about, additional small nuclear, reactors, there are large reactors. I mean, if they all kind of comes into play, is there a limit to how large or how much nuclear exposures you folks can actually accommodate?

David Smales

Yeah, I can take this one. Nuclear is a long-term industry. It means that you don’t decide on Fridays that you’re going to build a reactor and begin the works on Monday. I mean, the land have to be ready, all the environmental license, I mean, the technological license, the capacity to design and operate, everything is a lengthy process.

So, what we know at the moment is that, you’ve seen that we have booked a little more than $1 billion, I mean of new orders during the quarter for Bruce. We now have the possibility 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 but they can interlap. Just as a signal of lessons learned and the way we are progressing, you probably noticed that the second unit that OPG unit three was just delivered and substantially completed by our team 169 days ahead of schedule which just how the way we master now of this rehabilitation.

Evidently there is a decision coming about the refurbishment of four units at Pickering. It’s probably going to come during the Q3 2023. Then there is one year t o one and a half of preparation and early works and then we will begin to work if we are wanting to do the job. All this take time.

Regarding the small modular reactor, we have entered in a six-year alliance with GE Hitachi and SNC for the first one. You probably have noticed the announcement that there will not be one, but four smaller modular reactors under OPG in Ontario. All these will be sailed and we take time. S, only for this we are speaking of an horizon of something like 15 years without even talking about the big unit that can be developed and brought. So 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 would not be fall within the development of all those – I would say, nuclear program.

Chris Murray

Okay. That’s helpful. Thank you.

Operator

Thank you. Next question comes from Benoit Poirier from Desjardins Securities. Benoit, please go ahead.

Benoit Poirier

Yeah. Good morning, everyone. I 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 settlement that you’re looking for and maybe the remaining 40% exposure to your backlog to fix price the risks behind the – 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.

David Smales

So yeah, I mean, if you go back to my previous answer, in terms of the position on each of these projects at the end of Q2, in fact is in everything we do at this point in time the right answer in 2nd quarter, take all of those factors into account and they’re all based on forecasts through to the end of the job. So, with that positioning the – it’s not a case of being able to say, okay we now expect this or this. If those forecasts are correct then the impacts on those projects on a go forward basis from a profitability perspective should be zero.

Having said that, as we flagged 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 a situation as Jean-Louis described earlier. In terms of the balance of the backlog, as you’ve seen the mix of work is being shifting fairly significantly over the last 12 to 18 months away from fixed price into more non-fixed price work. As you there is still backlog in fixed price.

We’re very comfortable with those projects. We called out those four legacy projects for a reason. But the rest of the works that we’re doing, execution is going well and it’s all reflected in the margins you are seeing over the last few quarters, which as I said earlier, we expect that trend to continue in terms of positive margin development. So, no, we don’t see risk in the rest of the portfolio.

Benoit Poirier

Okay. Thank you.

Operator

Thank you. Our next question comes from Naji Baydoun from Industrial Alliance Securities. Please go ahead.

Naji Baydoun

Hi. Good morning. Can you maybe talk a little bit more about what additional compensations or measures that you pursuing for these fixed price projects? I understand it might take a bit of time and how that might impact the margin outlooks for the rest of this year? I think your previous commentary was margins could potentially be up year-over-year for 2023. I’m just wondering if that’s still the case.

David Smales

You’re sepaking about the legacy project? Your question is about?

Naji Baydoun

Correct. Yes.

Jean-Louis Servranckx

Yes. We are finalizing the execution of three of those projects. The fourth one would go up to 2025. We are negotiating with our client. There is no drops with all our clients that those projects have suffered from any modification and needs to be compensated. Now, as I have 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 under negotiation are quite substantial.

The issue of all the parameters attached to the additional revenue and this is where we are still working. And we expect some further settlements in the future, in the near future. But they are extremely difficult and complex negotiations.

Naji Baydoun

Okay. And just, maybe if we sort of look at the underlying business at these projects, can you just maybe confirm what the revenue EBITDA would have been on a normalized basis are part of the impacts of these projects? Just trying to get a sense of what the rest of the – how the rest of the Construction business is performing.

Jean-Louis Servranckx

I will begin and maybe David will give you more information. I mean, as we have noticed the EBITDA without those legacy projects for Q2 would have been $98 million, which is extremely strong. And the trailing 12 months EBITDA results the legacy project would have been spread around $75 million. And when you know, the revenue we are having 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’ve been developing over the last four years is the right one about balancing our activity, about strengthening our execution capacity, because the underlying is the normal business I would say, have never been that strong.

In addition, as I’ve already explained, we have tied and knots everything related with the first weeks of new project. As I say I mean, we have we are $6.9 billion of backlog. We have $7 billion of additional quality backlog associate with our three progressive design build project, Encore, Scarborough and small modular reactors. 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 fits with our capacity. This is why we are quite optimistic with all those parameters about Aecon after those legacy projects are definitely behind us.

David Smales

You also asked about revenue and margin impact to work out the impacts on the base business. So, as Jean Louis said, the EBITDA impact was $81 million. So, excluding those legacy projects, the rest of the business generated $98 million in EBITDA. Revenue attached to those legacy projects in the second quarter was approximately $150 million. So, if you exclude the legacy projects all together, then the EBITDA margin on a consolidated basis in the second quarter would have 9.6% as opposed to a 1.4% reported.

Naji Baydoun

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. So I guess you just got to work through these impacts for the next few quarters. Maybe just one last question for me. So, you got the road building sale completed and the Bermuda minority sale coming up next. Just any updates on use of proceeds and where do you expect sort of end the year, in terms of the balance sheet and the legacy profile?

Jean-Louis Servranckx

Yes, so, you know, the transaction closed in Q2. We expect the Bermuda sale to close shortly. We’ve now received all final approvals. So, it’s just a question of paperwork basically backwards and forwards, between lawyers. It should be closed in the next couple of weeks. So, that will contribute $128.5 million in terms of U.S. dollars approximately, $170 million, $175 million Canadian dollars 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, because there is 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.

David Smales

And so, I guess in terms of leverage profile community, 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.

Naji Baydoun

Understood. Appreciate it. Thank you.

Operator

Thank you. Our next question comes from Jonathan Lamers from Laurentian Bank Securities. Jonathan, please go ahead.

Jonathan Lamers

Thank you. Jean-Louis, just a follow-up on your earlier answer about settlement compensation payments on these legacy projects. Recognizing that negotiations are complex, do you have visibility today to whether these might be received later in 2023 or 2024? And, David, if they do fall into 2024, would you expect that to be positive free cash year?

Jean-Louis Servranckx

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 and part of the payment can be done before the end of the year. It’s quite an easy – usually payments are phase. They are not always, I would say, bullet paid. But 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 and we are pushing to have the right trade on between early payments and maximizing additional revenue.

David Smales

And Jonathan, in terms of, if those settlements were in 2024 that then yes, I would expect 2024 to be a positive free cash flow year. Obviously, the working capital build attached to those projects is impacted cash flow over the last 18 to 24 months. But as that unwinds, that will be a contributor to cash flow going forward.

Jonathan Lamers

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?

Jean-Louis Servranckx

Yeah. I mean some of the is attached to these claim settlements that we’re talking about in the four legacy projects and some of these just attached to some of the timing of milestones on other projects, as well as, it’s just the overall growth in revenue over the last 12 months. So, it is a combination. But as we – and will 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 expect that number to come down over the balance of this year and also into the first part of next year.

Jonathan Lamers

Okay. Thanks for your comments.

Operator

Thank you. Our next question comes from Ian Gillies from Stifel. Ian, please go ahead.

Ian Gillies

Morning, everyone. With respect to the four – 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? And if that’s the case, can you maybe just talk a little bit about how you’re managing that risk? So you can make sure you recover that revenue?

Jean-Louis Servranckx

I would tend to say that we are not expecting an 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, but I do not see developing on these four legacy project. Additional work that we should do that we don’t know and that would not be recognized. We – all this now is stabilizing.

Ian Gillies

Okay. That’s very helpful. The other item I was curious on, I mean, given some of the uncertainty around future write-downs or impairments relate 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?

David Smales

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 or in some cases with the same clients we’re negotiating with now.

And as we secure work and pre-qualify a 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’d be in a Concessions model or a progressive design build model or any other kind of models and regardless of the client, as well. So, no, we haven’t seen any restrictions on our ability to pursue work.

Ian Gillies

Okay. Thanks. That’s helpful. I’ll turn the call. I’ll turn it back over.

Operator

Thank you. Our next question comes from Maxim Sytchev with National Bank Financial. Maxim, please go ahead.

Maxim Sytchev

Hi, good morning gentlemen. I have a question may be in relation to 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 what leveraged likely it’s probably going to go up. I mean, JV cash sort of stripped out I mean not cash is pretty low just but obviously the influx from Bermuda.

So I’m just trying to think how you’re balancing, you know that risk on a going-forward basis, especially some of the difficult projects, have some time to run through. So, yeah, may be any update on that front would be helpful thank you.

David Smales

Yeah, so, I mean, we expect to see net leverage reduce going forward with the proceeds from Bermuda Salman on claims as they roll through the numbers and as we generate cash flow in the rest of the business, which as we talked about is performing well.

So, from that perspective, no concerns with where we are at in terms of level of dividend payment, which had a pretty consistent program there over a long period of time, which has been through various cycles and we retain fairly consistent approach and there’s nothing in our outlook that would cause us to change our philosophy.

Maxim Sytchev

And, is that stress tested for – again another potential sort of negative reforecast at some of the projects or again, how you are thinking about it like, I mean, I understand sort of the break case scenario, but maybe any incremental thoughts on that?

David Smales

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 always looking at the various ways things can play out. I mean, it’s obviously part of prudent planning and decision-making. So yes, you can assume that any decisions we make around capital allocation are appropriately stress tested.

Maxim Sytchev

Okay. And 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 as some of the legacy ‘projects’ are coming to fruition. Maybe any help in the front would be great. Thanks.

David Smales

Yeah, I mean, as Jean-Louis talked about earlier, the timing on these is harder to predict. But we do expect 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 too to some extent.

But if we if we’re able to reach additional settlements through the balance of the year, then I expect some of the working capital built – well not just expect, but some of the working capital build we’ve seen in the first six months of this year will unwind. And then, through 2024 the view is that working capital should be a contributor to overall cash flow.

Maxim Sytchev

Okay. And I think, I mean, what have just came from the sort of infrastructure projects? Any updates on your pipeline and capable assets sort of negotiations?

David Smales

Can you repeat the question? Max you’re just breaking up there.

Maxim Sytchev

Sorry. I apologize, because on what 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 legacy in finding capable assets. If there is any updates on the timelines and negotiations with the clients, there, as well? Thanks.

David Smales

So, I’ll talk to K process and Jean-Louis will take CGL. So in terms of K process, no, no, real update. You’ll see the language in the in the disclosure is the same as the prior quarter. We continue to go through the legal process with various ranges 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. But other than that, no, nothing changed from previous quarters,

Jean-Louis Servranckx

Yeah, regarding CGL, Maxim, where are we at the moment? You’d probably remember. We have two spreads, which we find out your first one. At press three, we have an agreement with CGL, our client regarding cash support to finish this job. We are aiming to finish it around the end of September. All our I mean, our productivity on site is going quite well. We are now running to the last kilometers of the breaks free.

We are at the same time under arbitration with our client but also in the discussion and negotiation ongoing around a certain number of topics. I imagine that if the arbitration is a way and that is decided to settle our issues then, the end of the story is probably going to be between end 2024 and ‘25. But 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 means 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.

Maxim Sytchev

Okay. That’s helpful. Thank you very much, Jean-Louis.

Operator

Thank you. Our next question comes from Michael Tupholme from TD Securities. Michael, please go ahead.

Michael Tupholme

Thank you. Good morning. Similar to the figure you provided earlier, Dave, on the – what the quarter would have looked like, had you excluded the impact from the four legacy projects. Can you provide that information for Q2 2022? Just we can get a comparison. I don’t think we have the revenue impact from last year maybe and also just clarify that what the EBITDA would have been?

David Smales

Yeah. So, Q2 last year, in terms of EBITDA was reported as 38.5. And that was after adjustments on the four legacy projects, or impact to the legacy projects of 28.2. So, effectively, around $60 million, 66 million, 67 million of EBITDA. From a revenue perspective, I think the – and I am going from memory here, but I think the impact to those projects was around $200 million, but we can certainly follow up on that and provide you with the exact number, but it was somewhere in that ballpark.

Michael Tupholme

Okay. That’s helpful. Thank you. And then, with respect to the revenue contribution from the four legacy fixed price JV projects, the $150 million in this quarter, that’s a bit higher than the decline in backlog and those projects with the decline of backlog quarter-over-quarter was closer to $100 million.

I think this was sort of asked earlier and it doesn’t sound like you expect the sort of additional revenues over and above what you I currently have in backlog. But how do we sort of understand that 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.

David Smales

Yeah, it’s that really relate to the civil project where as Jean-Louis said, there’s lots of different parameters around these negotiations and as we as we go through various discussions, there is various items that takes off the table in terms of obligations as things, the joint venture agrees to do.

And that can be things like acceleration of work or which means adding more people, more shifts, overtime, lots of different factors can go into that, which can increase the cost. And therefore, that’s what you see with respect to that civil sector project and the margin adjustment in the quarter. So that, that generate – that that effectively goes through that backlog number,

Michael Tupholme

Okay. Got it. And then, just lastly, from me, the, with the Bermuda sale expected to close in a few weeks, I know you’ve disclosed and then reiterated the sale price and I think in Canadian dollar terms that works out to around $170 million. Is that a net number that – is that we should think about the net number? Or is there some, there’s some cost that that we need to think about such that the net, net proceeds would be something lower than that?

David Smales

Yeah, there’s nothing in terms of adjustments for debt or all cash or anything like that. Just normal transaction type fees primarily. But yeah, no, not like ATE where we transferred all our equipment leases and equipment financing as part of sale that impacted the proceeds, there’s nothing of that nature with Bermuda.

Michael Tupholme

Okay. All right. Okay, thank you.

Operator

Thank you. Our final question comes from Sabahat Khan from RBC Capital Markets. Sabahat, please go ahead.

Sabahat Khan

Great. Thanks. And good morning. I guess, when just thinking about those four projects, you did talk about the midstream one where you are still in discussion. 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 that we should think if there is any further unknown risk gets on that project? Or is there any even – when your risk rank those four projects, how you think about where they might be more risk versus less?

David Smales

I mean, I think the positions – I mean, I don’t, I don’t think Sean-Louis was suggesting there are ongoing discussions with Aecon on that project? There are, 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 the same successfully. I think, we’re 100% aligned on that.

And as part of that, we talk about commercial issues too. And 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.

So, we are as active on that project as we are in any of the others. In terms of risk ranking them, again, if you step back and say what do we – what do these positions represent at the end of Q2? They represent our best view of every one of these projects. So they don’t risk ranked. Each one of them has a position that we feel is the right position as a joint venture and Aecon is part of that joint, venture still its going to be the final position.

Sabahat Khan

Okay. Great. And then, it seems like in the quarter, there were some PP&Es sold in and 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 where we should keep an eye on?

David Smales

No, I mean, in terms of those gains on a couple properties, I mean that was just a coincidence. They were both in Q2. One is you know industrial sector really a consequence of Canada 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. We’ve consolidated those two into one location and that freed up a property that we owned to be sold. And 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 for first refusal. We purchased the property in 2019 to be able to effectively secure the long-term home for that equipment division. And then this year, 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.

And so, we took the opportunity to sell the property and we will lease for a period of time while we evaluate our options. But no, I mean, typically we are not owners of a 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. So, they were both sales that just make sense based on where we are with those two businesses.

Sabahat Khan

Okay. And then, just one last one. You mentioned the rest of the business excluding these four larger projects and the margin indicator that sort of in the 9%, 9.5% range. It’s obviously quite high relative to the runrate 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 were a lot higher or is it just that the rest of the base business hasn’t seen maybe lots of that you might have seen in the past? Just trying to get context around that nine plus percent number.

David Smales

Yeah, no. I mean I think, you can assume the four legacy projects have been driving, I mean, even you know, obviously this quarter we’ve got some larger adjustments, but even in quarters where we haven’t had adjustments, it still tended to be zero margin type projects on revenue. So they dragged down the overall margin 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 there is really concerning is from a margin or a risk profile perspective. So without those four legacy projects, we do expect margins to be going forward more representative of where the base business is today.

Jean-Louis Servranckx

Maybe I can have some very general thoughts about it. I mean, I – obviously, we do understand the concern about the legacy projects and you can imagine that the management team level of Aecon, the focus we have on finalizing those negotiations, the compensation on the job, but I’m inviting you to have a look, not only to what would have been this quarter, Q2 2023 without the legacy projects.

We have discussed among two, three questions I mean a few minutes ago about it. I mean, the, the $98 million equivalent EBITDA and to compare it with to 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 say 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 mode of payments, 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 tuck-in acquisition.

And we will go on with this. Regarding also our strengthen, our team in front of the transition in fall of the wave of all of those sustainable projects, which means that when you have a look at the backlog we have and all those efforts is what I say, I mean, it’s quite interesting to try to imagine what will be Aecon in the years to come.

Sabahat Khan

Great. Thanks very much for the color.

Operator

Thank you. That is now the end of the Q&A session. I would now hand back over to Adam Borgatti for closing remarks.

Adam Borgatti

Thank you, Lauren and we appreciate everyone for your time today. Feel free to follow up as always if any questions and have a great rest of your day.

Operator

This concludes today’s call. Thank you all for joining. You may now disconnect your lines.