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Aecon Reports 2nd Quarter Results
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Toronto, Ontario – August 9, 2006: Aecon Group Inc. (TSX: ARE) today reported its results for the second quarter and first six months of 2006. Revenue, Margins, Operating Results and Net Income
Revenues in the second quarter of 2006 totalled $259 million, a decrease of $24 million from the same period last year. Revenues for the first half of the year increased slightly to $459 million from $456 million in 2005. Gross margins (revenues less costs and expenses) as a percentage of revenues increased to 6.8% in the quarter from 6.3% in the second quarter last year, and to 5.2% in the first half from 5.1% in the first half of 2005. Operating profit (representing the results from operations before interest, income taxes and extraordinary items) was $0.9 million in the quarter as compared to $4.5 million in the same quarter last year. The second quarter of 2005 was positively impacted by an unusually high level of claim settlements which account for much of the year-over-year variance. The first half's operating loss was $7.6 million this year, up from $4.8 million in 2005. Net loss in the quarter was $1.0 million ($0.03 per share) compared to net income of $1.7 million in the same quarter of 2005 ($0.06 per share basic and $0.05 per share diluted). Net loss in the first half was $11.9 million ($0.35 per share) compared to a net loss of $6.7 million ($0.23 per share) in the same quarter last year. The 2005 results included an extraordinary gain of $3.4 million after taxes.
Marketing, general and administrative expenses amounted to $13.8 million in the second quarter of 2006, which is $1.9 million higher than the same period last year due primarily to the expansion of operations in western Canada, higher incentive accruals, higher stock option compensation expenses and increased Bill 198 compliance costs in the Corporate group. Foreign exchange losses in the quarter amounted to $1.0 million as compared to losses of $0.6 million in the same quarter last year. In addition, results for the second quarter included gains on sale of assets of $0.1 million as compared to $1.0 million last year. Outlook
“Aecon's second quarter results continue to track as expected,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “These results and the ongoing strength of Aecon's core markets in Canada tend to reinforce my expectation of increased margins and a positive net income for Aecon in 2006.” “Aecon's backlog of contracted work has grown considerably in the past year and is now at levels not seen for some time,” said Scott Balfour, President and CFO, Aecon Group Inc. “At the same time, we've seen a very positive trend toward improved margins. Taken together, these trends bode well for Aecon's near term earnings.” The Cross Israel Highway is performing well and traffic is ramping up as anticipated notwithstanding current events in the region. Construction has now started on the new airport in Quito, Ecuador, following the concession's financial close late in the second quarter. In late 2007, progress is expected to have reached the stage where construction profits can be booked under Aecon's accounting policy (generally when the contract is 20% complete). Backlog and New Business Awards New business awards in the quarter increased by $191 million over the same quarter last year to $414 million, driving Aecon's backlog to $812 million at June 30, 2006 – the highest it has been in almost five years. Backlog at June 30 was $282 million higher than at the same time last year and $235 million higher than at year end. On a segmented basis, backlog increases since June 30, 2005 of $309 million in the Infrastructure segment and $100 million in the Industrial segment offset a decline in the Buildings segment where the focus has shifted to driving margin improvement instead of revenue growth. Included in backlog in the Infrastructure segment is $133 million related to the new Quito airport project. Although Aecon's 50% share of the construction revenues from this project is estimated at $230 million, the amount reported as backlog has been reduced to reflect the fact that, since Aecon has an interest in the concession company for which the new airport is being constructed, it cannot report backlog that effectively arises from transacting with itself. Importantly, the margins expected to be earned from backlog (both in real terms and as a percentage of revenues) continue to grow – making each dollar of backlog potentially more valuable than has been the case in recent years. Not included in backlog, but important to Aecon's prospects, are the expected revenues from Aecon's growing alliances and supplier-of-choice arrangements such as those in place with Expertech, Union Gas, Ontario Power Generation and Suncor. Aecon's effective backlog is therefore greater than what is reported here.
Second Quarter Business Highlights · Financial close was achieved on the Quito International Airport. Project lenders have advanced the first tranche of financing and construction started in July on the new US$414 million airport. · Average week day traffic on the Cross Israel Highway in the second quarter of 2006 was up approximately 12% compared to the second quarter of 2005. · An Aecon Constructors joint venture was awarded the $77 million Bathurst/Langstaff tunnel project north of Toronto by the Regional Municipality of York. · Aecon Construction & Materials was awarded four contracts totaling $83 million from the Ontario Ministry of Transportation for work on Highway 401 in the London area, on Highway 11 at Burk's Falls and on the Queen Elizabeth Way at 16 Mile Creek. · Aecon Atlantic was awarded the Construction Management contract for the $12 million Halifax Infirmary Hospital Emergency Department Renovations and Addition project. · Aecon Industrial was awarded fabrication and construction contracts totaling over $20 million for various projects including the Union Gas Dawn F Compressor and the ongoing Bruce Power Unit 1&2 Restart. Segmented Results
Aecon reports its results in four segments: Infrastructure, Buildings, Industrial and Concessions. Prior to this quarter, Aecon reported its concession operations (principally its investment in the Cross Israel highway) within its Infrastructure segment. However, with the recent achievement of financial close on the Quito International Airport concession, ownership and operation of concessions became a significant portion of Aecon's overall operations. As a result, it was decided that the breakout of these operations into a new segment would improve the quality of the information provided to shareholders. Infrastructure
The Infrastructure segment includes all aspects of civil construction from highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction.
Note: Certain prior period comparative figures have been reclassified to conform to the new segment definitions adopted in the quarter.
Revenues from the Infrastructure segment increased slightly from $104 million in the second quarter of 2005 to $108 million this quarter, as revenue gains of $12 million from roadbuilding operations and $5 million from utilities operations offset revenue declines of $12 million from Quebec operations. Operating results from the Infrastructure segment were $2.7 million below the same quarter last year, mostly because of the unusually high level of claim settlements recorded in the second quarter of 2005 and the completion last year of construction work on the Cross Israel Highway and the Nathpa Jhakri hydro-electric project in India. Looking ahead, Aecon continues to expect a strong year from its Ontario roadbuilding and utilities operations, with increased profit contributions anticipated in both of these sectors over those reported in 2005. These increased profit contributions, along with an expected improvement in results from Aecon's Quebec civil operations (largely as a result of claim settlements), are expected to more than offset a decline in contributions from international construction in 2006. Buildings The Buildings segment includes all aspects of Aecon's commercial, institutional and multi-unit residential building construction and renovation activities.
Revenues in the Buildings segment were $80 million in the quarter, a $28 million decline from the second quarter of 2005 as operations in this segment increased their focus on margin enhancement rather than revenue growth. Revenue declines of $27 million in the Toronto area, $10 million in Ottawa and $6.2 million in Montreal offset an $11 million increase in revenues generated from the Seattle business unit. Despite the decline in revenues, operating profit in the segment increased to $1.2 million in the quarter from $0.4 million in the same quarter last year. Improvements in Toronto of $0.7 million (due in large part to the favourable resolution of a change order carried over from 2005) and in Seattle of $0.4 million offset small declines totalling $0.3 million in the balance of the sector. The Buildings segment remains on track to report improved margins and increased profit contributions in 2006 despite expectations that the decline in revenue will continue in the second half of the year. Profit contributions from the Toronto and Seattle business units are expected to increase in 2006, while overall profit contributions from the Buildings segment's other business units are expected to approximate those reported in 2005, with some business units recording a modest increase in profit contributions and others posting a modest decline.
Industrial Industrial operations include all of Aecon's industrial manufacturing and construction activities from in-plant construction in the nuclear and cogeneration sectors to the fabrication and assembly of specialty pipe and modules for the oil and gas sector and the design and manufacture of Once Through Steam Generators.
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