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Aecon reports first quarter results

May 5, 2005
  • Year-over-year improvement in operating results from continuing operations
  • On track for return to profitability in 2005
  • Historical trend of losses early in the year (due to seasonality of the business) followed by profits in subsequent quarters is expected to repeat in 2005
  • Loss before taxes and discontinued operations reduced to $6.9 million from $10.4 million in 2004
  • Increased net loss from continuing operations due to non-cash differences in accounting for income taxes
  • Buildings segment shows turnaround - reports first quarterly operating profit since 2003
  • Signing of financing documents for Quito Airport project still expected in second quarter
  • Revenue from continuing operations down but backlog growing
  • Balance sheet further strengthened to strongest ever liquidity and capital levels and only modest debt
  • Traffic continues to ramp-up on Cross Israel Highway


Toronto, Ontario – May 12, 2005: Aecon Group Inc. (TSX: ARE) today reported an improvement in operating results from continuing operations in the first quarter of 2005 compared to the first quarter of 2004. Net loss from continuing operations increased in the same period due to non-cash differences in accounting for income taxes.

Revenue, Operating Results and Net Loss

Revenue from continuing operations declined by $16 million to $173 million in the first quarter of 2005 as compared to the same quarter in 2004.

Operating losses from continuing operations (representing the net loss from operations before extraordinary items, interest or income taxes) in the first three months of 2005 amounted to $9.3 million, a small improvement from the $9.4 million loss recorded in the same period last year.

Pre-tax losses before discontinued operations were $6.9 million in the first quarter of 2005, a $3.5 million improvement over the $10.4 million loss recorded in the same quarter of 2004.

In the first quarter of 2005, Aecon's net loss amounted to $8.4 million. Had Aecon's first quarter accounting for income taxes remained the same in 2005 as in previous years (and a valuation allowance against tax assets not been taken) the net loss in the first quarter of 2005 would have been $3.9 million. This compares to the $6.9 million loss before discontinued operations recorded in the corresponding period last year. Including discontinued operations, the net loss for the first quarter last year was $2.4 million, reflecting a claim settlement of $7.3 million (before tax) within discontinued operations.


"Overall, results from the first quarter of 2005 indicate that Aecon is turning the corner," said John M. Beck, Chairman and CEO, Aecon Group Inc. "The changes we made over the past year and the strategic direction we set at the close of 2004 appear to be having their intended effect. Management continues to expect significantly improved results and a return to profitability in 2005."

Balance Sheet

Also in the first quarter, Aecon raised $32.5 million through the private placement of an unsecured convertible debenture, the proceeds of which were used to partially replace Aecon's traditional bank-financed operating facility. As a result, Aecon's balance sheet has been considerably strengthened with working capital of $42 million and record levels of equity and near equity, including the recently issued convertible debentures, of $164 million.

"The recent debenture, combined with the significant financing initiatives completed last year, has substantially improved our financial strength," said Scott Balfour, Executive Vice President and CFO, Aecon Group Inc. "Not only is our balance sheet now stronger than it has been in years but I'd say it is likely one of the strongest in the industry in Canada."

Backlog and New Contract Awards

Aecon's backlog reached $590 million at March 31, 2005, an increase of $25 million from the beginning of the year and $12 million from the same time last year. The year over year increase was despite a decline in major projects backlog, which fell by $11 million as construction of Aecon's major projects in India and Israel reached completion. This depletion of Aecon's major projects backlog is expected to be reversed when the anticipated financial close of the Quito Airport project adds approximately $250 million to Aecon's backlog.

New contract awards totaled $198 million in the first quarter of 2005, a decrease of $22 million from the same period of 2004.

Segmented Results

Aecon reports its results in three segments: Infrastructure, Buildings and Industrial.


The Infrastructure segment includes all aspects of civil construction from roads, highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction and infrastructure development.

Financial Highlights:

Financial Highlights
$ millions Three months ended March 31
    2005   2004   % Change
Revenues $ 57.6 $ 55.0   4.8%
Operating loss   (4.6)   (6.0)   23.2%
Return on revenue   (8.0)%   (10.9)%   26.6%

Overall, revenues from the Infrastructure segment increased marginally in the first quarter as compared to the previous year. Revenues of $12.9 million from roadbuilding operations were $4.4 million higher than last year, Utilities operations reported a $5.2 million increase, Quebec civil revenue increased $4.1 million and other civil operations posted a $1.9 million increase in revenues over last year. These increases were partially offset by completion of the Cross Israel Highway and the Nathpa Jhakri hydro-electric project in India. Combined, these two projects generated revenues of $1.8 million in 2005 compared to $14.9 million during the first quarter of last year.

Losses before interest and income taxes from the Infrastructure segment were $0.5 million in the quarter, a $5.5 million improvement over the same quarter in 2004. A significant component of the improvement related to an extraordinary gain resulting from the acquisition by Aecon of a partner's share in the joint venture that constructed the Cross Israel Highway.

Utilities operations produced a $0.6 million improvement over 2004 in operating results, generating a loss of $1.3 million in 2005 while roadbuilding operations incurred an operating loss of $2.8 million in 2005, down from a loss of $3.1 million in the first quarter of 2004. Quebec civil operations generated an operating profit of $0.3 million in 2005, which represents a $2.6 million improvement over the loss incurred in the first quarter of 2004. No profits were recorded in the quarter on Aecon's 50% interest in the Eastmain hydro-electric project.

Over the entire year, the infrastructure segment is expected to show an increased operating profit as compared to last year. In addition, signing of the required financing documents for the Quito Airport project is expected to occur late in the second quarter, with satisfaction of the final conditions precedent and flow of funds expected about 90 days later.

Tolling and highway operations are functioning well on the Cross Israel Highway, with traffic volumes continuing to be strong and in the range anticipated. When the results of a recently updated traffic study are taken into account, the project's financial model continues to forecast that the first cash disbursement to Aecon and the other shareholders in the concession will take place in the second half of 2009. The projected after tax internal rate of return on the project remains in the 14% range assuming full exercise of the State and lender options.

Business highlights for the Infrastructure segment include:

  • The Ministry of Transportation of Ontario awarded Aecon a $17.5 million contract to complete a portion of the four-lane Highway 69 from Parry Sound to Sudbury in a 50/50 joint venture with Leo Alarie and Sons Ltd.
  • Aecon Construction and Materials Ltd. won awards for Environmental Project of the Year over $10 million from the Ontario Public Works Association and for Hot Mix Paver of the Year from the Ministry of Transportation of Ontario.
  • Aecon Constructors, in a $68 million joint venture (Aecon 30%) for the Region of York, mobilized tunneling operations on Phase 2 of the 16th Avenue sewer tunnel in Markham, Ontario following receipt of permits to take water.


The Buildings segment includes all aspects of Aecon's commercial, institutional and multi-unit residential building construction and renovation activities.

Financial Highlights:

Financial Highlights
$ millions Three months ended March 31
    2005   2004   % Change
Revenues $ 77.2 $ 83.6   (7.7)%
Operating profit (loss)   0.2   (1.7)   n/a
Return on revenue   0.3%   (2.0)%   n/a

Revenues in the Buildings segment decreased in the quarter by $6.4 million from the same quarter in 2004. The largest decline came in the Seattle business unit which fell by $10.3 million. Revenues from Montreal operations increased by $7.1 million, largely as a result of the acquisition in the second quarter of 2004 of Cegerco CCI.

Despite the lower revenues, results in the first quarter were significantly better than last year, with an operating profit of $0.2 million in the quarter compared to an operating loss of $1.7 million in the same quarter last year. Results from the segment's Ottawa operations improved in the quarter as compared to the first quarter of 2004, coming close to breakeven, while the Toronto and Central Ontario region, which accounts for more than 50% of Buildings' revenues, improved from a small loss in 2004 to a small profit in 2005.

While the changes implemented in 2004 are still in the early stages, management continues to expect a substantial turnaround in results from the Buildings segment in 2005, including a return to profitability this year.

Business highlights for the Buildings segment include:

  • Aecon Buildings was awarded a $57 million general contract to construct Phase two of the University of Guelph's new Science Complex.
  • The Atlantic Buildings division received a construction management contract for approximately $19 million in additions and renovations to the IWK Health Centre in Halifax, Nova Scotia, a family-centered care facility and the largest children's hospital east of Montreal.
  • Aecon's 50/50 joint venture on the $568 million phase two of the new terminal development project at Pearson International Airport in Toronto is proceeding on schedule and progressing well.


Industrial operations include all of Aecon's industrial manufacturing and construction activities from in-plant construction to the fabrication of specialty pipe and the design and manufacture of Once Through Steam Generators.

Financial Highlights:

Financial Highlights
$ millions Three months ended March 31
    2005   2004   % Change
Revenues $ 39.0 $ 50.8   (23.2)%
Operating profit (loss)   (2.4)   3.4   n/a
Return on revenue   (6.1)%   6.6%   n/a

First quarter revenues of $39.0 million in the Industrial segment were $11.8 million less than reported in the same period last year. Revenues at Innovative Steam Technologies ("IST"), which sells and licenses the technology for once through steam generators, were up from $5.1 million in the first quarter of 2004 to $7.4 million in 2005 and pipe fabrication revenues in Ontario and Eastern Canada were $3 million higher in the first quarter of 2005 compared to the first quarter of 2004. However, other sectors within the Industrial segment had lower revenues than 2004. Revenues from Projects and Automotive operations in Eastern Canada were down $7.4 million from the prior year (returning to more normal levels after being unusually high at this time last year) and revenues from Western Operations were down by $9.8 million.

The Industrial segment recorded a loss of $2.4 million in the first quarter of 2005 compared to a profit of $3.4 million during the same period last year. Despite the increase in revenues from IST, operating margin percentages were reduced as a result of a change in the mix of work. Projects and Automotive activities in Eastern Canada broke even in the first quarter of 2005 compared to an operating profit of $2.3 million in 2004, while results from Western Canada operations declined by $2.7 million and pipe fabrication operations in Ontario and Atlantic Canada improved by $0.5 million.

Although Aecon's industrial segment is off to a slower start in 2005 than was the case last year, this trend is expected to reverse over the balance of the year and result in a significant improvement in profit contribution by year end. This improvement is expected to be led by the Western Operations business unit where considerable new work has been committed by our customers in Alberta, notably in work related to oil sands projects in northern Alberta. These new projects are expected to add significantly to both segment revenues and operating income over the balance of the year.

Business Highlights for the Industrial segment include:

  • Aecon Industrial secured three key projects in Alberta valued at approximately $60 million. Projects include: demolition and rebuilding of a fire-damaged Suncor facility in Fort McMurray; a project at Petro Canada's Edmonton refinery on their GOT Project; and a contract at OPTI Canada's Nexen Long Lake Oil Sands project in Fort McMurray.
  • Aecon Industrial received its nuclear certificate of authorization from the Technical Standards and Safety Authority.
  • Aecon Industrial began operating as a Tier 1 equipment supplier for the DaimlerChrysler DCX Brampton Assembly Plant to retrofit and replace paint shop conveyors. Aecon's role includes engineering, fabrication, controls, installation, start up and commissioning.

Corporate and Other

Net corporate expenses amounted to $2.5 million in the quarter, compared to $5.1 million in the same quarter last year. Included in corporate expenses in 2004 was a $2.6 million lease termination payment related to the relocation and consolidation of Aecon's offices in the Toronto area.

Consolidated Results

The Consolidated Results for the First Quarter are available at the end of this News Release.

Balance Sheet Highlights
(in thousands of dollars) (unaudited)

Balance Sheet Highlights
Cash, cash equivalents and marketable securities $ 57,293 $ 65,722
Other current assets   197,096   249,674
Property, plant and equipment   58,007   58,983
Other long-term assets   88,561   80,948
Total Assets $ 400,957 $ 455,327
Current liabilities $ 212,193 $ 261,797
Long-term debt   17,910   40,352
Other long-term liabilities   73,071   50,222
Shareholders' equity   97,783   102,956
Total Liabilities and Shareholders' Equity $ 400,957 $ 455,327

Conference Call

A conference call has been scheduled for Thursday, May 12 at 10:00 a.m. ET to discuss Aecon's third quarter financial results. Participants should dial 1-800-240-5318 at least 10 minutes prior to the conference time of 10:00 a.m.

For those unable to attend the call, a replay will be available after 12:00 p.m. at 1-877-289-8525 or 416-640-1917 until midnight, May 26, 2005. The passcode is 21124594#.

About Aecon

Aecon Group Inc. is Canada's largest publicly traded construction and infrastructure development company. Aecon and its subsidiaries provide services to private and public sector clients throughout Canada and internationally.

The information in this news release includes certain forward-looking statements. These statements are based upon assumptions that are subject to significant risks and uncertainties which are generally described in Section 3.2 "Risk Factors" in the 2005 Annual Information Form available on SEDAR at Although Aecon believes that the expectations reflected in forward-looking statements are reasonable, it can give no assurance that the expectations of any forward-looking statements will prove to be correct.

Consolidated Statements of Operations For the Three Months ended March 31, 2005 and 2004
(in thousands of dollars, except share amounts) (unaudited)

Consolidated Statements of Operations For the Three Months ended March 31, 2005 and 2004
    2005   2004
Revenues $ 172,872 $ 189,014
Costs and expenses   167,580   182,741
Marketing, general and administrative expenses   12,817   13,916
Depreciation and amortization   1,766   1,747
(Gain) loss on sale of assets   (23)   30
Interest expense, net   1,736   932
    183,876   199,366
Loss before income taxes, extraordinary items, and discontinued operations   (11,004)   (10,352)
Income taxes (recovery)        
Current   830   665
Future   --   (4,075)
    830   (3,410)
Loss before extraordinary items, and discontinued operations   (11,834)   (6,942)
Extraordinary gain, net of income taxes   3,444   --
Loss before discontinued operations   (8,390)   (6,942)
Income from discontinued operations   --   4,580
Net loss for the period $ (8,390) $ (2,362)
Loss per share before extraordinary items, and discontinued operations        
Basic $ (0.40) $ (0.28)
Diluted $ (0.40) $ (0.28)
Net loss per share        
Basic $ (0.29) $ (0.10)
Diluted $ (0.29) $ (0.10)
Average number of shares outstanding        
Basic   29,271,962   24,552,582
Diluted   33,141,231   28,467,596