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Aecon reports improved third quarter results
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Toronto, Ontario – November 8, 2006: Aecon Group Inc. (TSX: ARE) today reported improved results for the third quarter and first nine months of 2006 as margins, operating profit and net income all improved compared to the same periods last year. Revenue, Margins, Operating Profit and Net Income
Revenues in the third quarter of 2006 totalled $316 million, a decrease of $25 million from the same period last year, while revenues for the first nine months of the year were $775 million compared to $797 million in 2005. Gross margins (revenues less costs and expenses) as a percentage of revenues increased to 10.4% in the quarter from 5.9% last year and to 7.3% in the first nine months from 5.4% in 2005. Operating profit (representing the results from operations before interest, income taxes and extraordinary items) grew to $14.5 million in the quarter as compared to $4.9 million in the same quarter last year. For the nine months, operating profit was $7.0 million, compared to $0.1 million in 2005. Net income in the quarter improved to $12.8 million ($0.34 per diluted share / $0.35 basic) compared to net income of $2.1 million in the same quarter of 2005 ($0.07 per share basic and diluted). Net income of $0.9 million ($0.03 per share basic and diluted) in the first nine months compares to a net loss of $4.6 million ($0.16 per share basic and diluted) in the same period last year.
Marketing, general and administrative expenses amounted to $13.2 million in the third quarter of 2006, which is $1.8 million higher than the same period last year due primarily to the expansion of operations in western Canada, higher incentive accruals and increased Bill 198 compliance costs in the Corporate group. Depreciation and amortization expense of $5.3 million in the quarter is $3.3 million higher than the same quarter last year and is due primarily to the amortization of concession rights related to the existing Quito airport, which commenced in the quarter. Foreign exchange gains in the quarter of less than $0.1 million compared to losses of $1.7 million in the same quarter last year. Outlook
“Aecon's third quarter results are in line with our expectation of a strong second half and they reinforce our expectations for a profitable year,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “The solid improvement we've seen in our operations also positions Aecon well for further growth in profitability beyond 2006.” “At our AGM in June, we outlined a strategic plan designed to drive improved profitability through 2007 and 2008 – including a focus on Canada, a priority on margin growth over volume growth, leveraging our strength in the energy and transportation sectors, and concentrating on those areas where we have a proven record of profitability,” Mr. Beck said. “I think the strong results achieved to date are evidence that this strategy has us headed in the right direction in line with our business plan.” “Aecon's backlog of contracted work is higher than we've seen in over five years and continues to grow,” said Scott Balfour, President and CFO, Aecon Group Inc. “Perhaps more important however, is the margin growth, both in real terms and as a percentage of revenues, that is imbedded in this backlog. Together, these trends bode well for Aecon's prospects and earnings.” The Cross Israel Highway is performing well and traffic is ramping up as anticipated. Negotiations continue to finalize arrangements for the highway's northern extension, with financial close most likely to occur early in 2007. The continued strong performance of this asset reinforces management's view that it holds significant value in excess of Aecon's investment, and work continues to monetize at least a portion of this value by the end of 2007. Backlog and New Business Awards New business awards of $343 million in the quarter represented a $44 million increase from the same quarter last year, driving Aecon's backlog to a five year high of $838 million at September 30 ($350 million higher than at the same time last year). On a segmented basis, backlog increases of $290 million in the Infrastructure segment and $110 million in the Industrial segment over the past 12 months offset a decline of $51 million in the Buildings segment. Included in Infrastructure backlog is $129 million related to the new Quito airport project. 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 Union Gas, Ontario Power Generation, Bell Canada, Expertech and Suncor. Aecon's effective backlog is therefore greater than what is reported here.
Business Highlights · All four segments recorded an improved return on revenue in the third quarter as compared to the same quarter last year, reflecting Aecon's focus on margin growth as opposed to volume growth. · Average week day traffic on the Cross Israel Highway in the third quarter of 2006 was up approximately 12% compared to the third quarter of 2005 despite the heightened tensions in the region during the quarter. · Construction of the new airport in Quito, Ecuador is off to a good start with approximately 250 workers currently on site where work is progressing on schedule and on budget. Segmented Results
Aecon reports its results in four segments: Infrastructure, Buildings, Industrial and Concessions. Ø 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 second quarter of this year. Revenues from the Infrastructure segment increased to $173 million in the third quarter from $137 million in the same period last year, as revenue gains of $40 million from roadbuilding operations $1 million from utilities operations and $9 million from other heavy civil operations offset revenue declines of $14 million from the segment's Quebec operations. Operating profits of $11.8 million were up significantly from the $4.5 million recorded in the third quarter of 2005. Increased operating profits were reported by all operating units with roadbuilding, utilities, Quebec operations and other heavy civil operations up $2.3 million, $0.6 million, $2.3 million, and $2.2 million respectively. 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. Ø 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 $71 million in the third quarter, a $43 million decrease over the same period last year. The Toronto operations had the largest single reduction in revenue, declining $39 million, while the Ottawa and Montreal operations had reductions of $6 million and $4 million respectively. Partially offsetting these declines was an increase of $3 million in revenues from the segment's Seattle operations. Operating profits in the quarter were $1.3 million compared to $1.5 million in the third quarter last year. These profits, generated from a smaller revenue base, produced an increase in return on revenue to 1.9% this year, up from 1.3% in 2005. The Toronto, Ottawa, Halifax and Vancouver operations reported small profit improvements in the quarter, offset by declines in Montreal and Seattle. None of the increases or declines exceeded $0.5 million. The Buildings segment is expected to report improved margins and increased profit contributions in 2006 despite expectations of a year over year decline in revenues. Profit contributions from the Toronto business unit are expected to increase in 2006 (due in part to the favourable resolution of outstanding change orders and claims), while overall profit contributions from the segment's other business units are expected to approximate those reported in 2005, with some business units recording a modest increase in contributions and others posting a modest decline. Ø 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 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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