-
Margins continue to show strong improvement
-
Operating profit increases to $14.5 million
-
Net income grows to $12.8 million
-
Backlog of work at highest level in five years
-
Results reinforce profitable outlook for 2006
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.
|
Financial Highlights
|
|
|
|
Three Months Ended September 30
|
Nine Months Ended September 30
|
|
$ millions
|
|
2006
|
|
2005
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
316
|
$
|
341
|
|
|
$
|
775
|
$
|
797
|
|
Gross margin
|
|
32.9
|
|
20.1
|
|
|
|
56.9
|
|
43.2
|
|
Operating profit
|
|
14.5
|
|
4.9
|
|
|
|
7.0
|
|
0.1
|
|
Interest expense, net
|
|
1.7
|
|
2.4
|
|
|
|
5.9
|
|
6.7
|
|
Income taxes
|
|
-
|
|
0.4
|
|
|
|
0.2
|
|
1.5
|
|
Extraordinary gain, net of income taxes
|
|
-
|
|
-
|
|
|
|
-
|
|
3.4
|
|
Net income (loss) for the period
|
|
12.8
|
|
2.1
|
|
|
|
0.9
|
|
(4.6)
|
|
Backlog - September 30
|
$
|
838
|
$
|
489
|
|
|
|
|
|
|
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
· The $12.8 million net income reported in the third quarter makes it the most profitable quarter in Aecon's history.
· All four segments recorded an improved return on revenue in the third quarter as compared to the same quarter last year, reflecting Aecon's focus on margin growth as opposed to volume growth.
· Average week day traffic on the Cross Israel Highway in the third quarter of 2006 was up approximately 12% compared to the third quarter of 2005 despite the heightened tensions in the region during the quarter.
· Construction of the new airport in Quito, Ecuador is off to a good start with approximately 250 workers currently on site where work is progressing on schedule and on budget.
Segmented Results
Aecon reports its results in four segments: Infrastructure, Buildings, Industrial and Concessions.
Ø
Infrastructure
The Infrastructure segment includes all aspects of civil construction from highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction.
|
Financial Highlights
($ millions)
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
|
|
|
2006
|
|
2005
|
|
|
|
|
2006
|
|
2005
|
|
|
|
Revenues
|
$
|
173
|
$
|
137
|
|
|
|
$
|
338
|
$
|
296
|
|
|
|
Segment operating profit
|
|
11.8
|
|
4.5
|
|
|
|
|
9.3
|
|
5.8
|
|
|
|
Return on revenue
|
|
6.8%
|
|
3.3%
|
|
|
|
|
2.8%
|
|
1.9%
|
|
|
|
Backlog - September 30
|
$
|
465
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
Financial Highlights
$ millions
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
|
2006
|
|
2005
|
|
|
|
|
2006
|
|
2005
|
|
Revenues
|
$
|
71
|
$
|
115
|
|
|
|
$
|
239
|
$
|
300
|
|
Segment operating profit
|
|
1.3
|
|
1.5
|
|
|
|
|
2.0
|
|
2.1
|
|
Return on revenue
|
|
1.9%
|
|
1.3%
|
|
|
|
|
0.8%
|
|
0.7%
|
|
Backlog - September 30
|
$
|
191
|
$
|
242
|
|
|
|
|
|
|
|
|
|
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.
|
Financial Highlights
$ millions
|
Three Months Ended September 30
|
|
Nine Months Ended
September 30
|
|
|
|
2006
|
|
2005
|
|
|
|
|
2006
|
|
2005
|
|
|
Revenues
|
$
|
65
|
$
|
83
|
|
|
|
$
|
185
|
$
|
191
|
|
|
Segment operating profit
|
|
4.4
|
|
2.5
|
|
|
|
|
6.9
|
|
2.4
|
|
|
Return on revenue
|
|
6.8%
|
|
3.0%
|
|
|
|
|
3.7%
|
|
1.3%
|
|
|
Backlog - September 30
|
$
|
182
|
$
|
71
|
|
|
|
|
|
|
|
|
Revenues in the Industrial segment were $65 million in the quarter, an $18 million decline from the same quarter in 2005. Increases of $5 million from the segment's Ontario construction operations, $4 million from fabrication operations in Ontario and Atlantic Canada, and $1 million from Innovative Steam Technologies (IST) were offset by declines in Western Canada due to the completion of a large fire re-build project in 2005.
Operating profits in the segment grew to $4.4 million, a $1.9 million increase from the third quarter of 2005. The increased earnings were generated by improvements of $1.3 million from Ontario construction, $1.3 million from Ontario and Atlantic fabrication operations and $0.3 million from IST.
The outlook for Aecon's Industrial segment continues to strengthen, led by expectations of solid improvements from the segment's fabrication operations across the country and the module assembly operation in Alberta. Aecon's industrial construction operations in Ontario are also expected to have another solid year, although it is still expected that profit contributions in this sector will fall just short of the strong results recorded in 2005. IST continues to operate in a challenging sales environment where sales prospects, although strong, continue to develop at a pace significantly slower than originally anticipated – likely resulting in reduced revenues and a net loss for the year in this business unit.
Ø
Concessions
The Concessions segment includes the development, operation and financing of infrastructure projects by way of public-private partnership, build-own-operate-transfer or other alternative financing contract structures. This segment focuses primarily on the operations, management, maintenance and enhancement of investments in transportation infrastructure concessions, including the Cross Israel Toll Highway and Quito International Airport concession companies.
|
Financial Highlights
$ millions
|
Three Months Ended September 30
|
|
Nine Months Ended September 30
|
|
|
|
2006
|
|
2005
|
|
|
2006
|
|
2005
|
|
Revenues
|
$
|
12
|
$
|
7
|
|
$
|
23
|
$
|
13
|
|
Segment operating loss
|
|
(0.4)
|
|
(0.5)
|
|
|
(2.3)
|
|
(1.7)
|
|
Return on revenue
|
|
(3.3)%
|
|
(7.0)%
|
|
|
(10.1)%
|
|
(12.6)%
|
Note: Certain prior period comparative figures have been reclassified to conform to the new segment presentation that was adopted in the second quarter of 2006.
Revenues in the Concessions segment were $12 million in the quarter, a $5 million increase over the same period in 2005, reflecting the inclusion this quarter of $7 million in revenues from operation of the existing Quito Airport.
An operating loss of $0.4 million for the third quarter of 2006 was a $0.1 million improvement over last year as an operating profit of $0.8 million from the existing Quito airport was offset by higher MG&A costs in the segment.
While the investments reported in Aecon's Concessions segment continue to grow in value, this increasing value will not be fully reflected in earnings until certain project milestones are reached or when a portion of an investment is monetized. The modest amount that is expected to be earned in 2006 from the operation of the existing Quito airport, combined with the fees earned from other concession operations in Israel and Canada, are not expected to offset the overhead and other costs incurred in this segment. However, more meaningful contributions are expected from the existing Quito airport during the remainder of the construction period.
Ø
Corporate and Other
Net Corporate expenses for the quarter were $2.6 million compared to $3.0 million in 2005. The decrease is due primarily to lower losses on sales of fixed assets this year.
Consolidated Results
The Consolidated Results for the third quarter and first nine months of 2006 and 2005 are available at the end of this News Release.
Balance Sheet Highlights
|
Balance Sheet Highlights
|
|
(thousands of dollars)
|
|
Sept. 30, 2006
|
|
Dec. 31, 2005
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and restricted term deposits and marketable securities
|
$
|
53,737
|
$
|
49,820
|
|
Other current assets
|
|
359,541
|
|
292,595
|
|
Property, plant and equipment
|
|
53,360
|
|
56,116
|
|
Other long-term assets
|
|
182,115
|
|
105,891
|
|
Total Assets
|
|
648,753
|
|
504,422
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
294,860
|
$
|
286,659
|
|
Long-term debt
|
|
62,518
|
|
35,671
|
|
Other long-term liabilities
|
|
146,849
|
|
75,764
|
|
Shareholders' equity
|
|
144,526
|
|
106,328
|
|
Total Liabilities and Shareholders' Equity
|
|
648,753
|
|
504,422
|
Conference Call
A conference call has been scheduled for Wednesday, November 8, 2006 at 10:30 a.m. ET to discuss Aecon's Third Quarter 2006 financial results. Participants should dial 416-620-2408 or 1-800-215-1640 at least 10 minutes prior to the conference time of 10:30 a.m.
For those unable to attend the call, a replay will be available after 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, November 15, 2006. The pass code will be 21309328#.
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. Forward-looking statements are based on estimates and assumptions derived from past experience and interpretation of historical trends, current conditions and expected future developments. Many factors could cause Aecon's actual results, performance or achievements to vary from those expressed or inferred by these statements. Risk factors are discussed in greater detail in the Section entitled “Risk Factors” in Aecon's Renewal Annual Information Form dated March 31, 2006 and filed on SEDAR at www.sedar.com. 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 Sept. 30, 2006 and 2005
(in thousands of dollars, except per share amounts) (unaudited)
|
Consolidated Statements of Operations for the three months ended Sept. 30, 2006 and 2005
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenues
|
$
|
316,039
|
$
|
340,793
|
|
|
|
|
|
|
|
Costs and expenses
|
|
283,123
|
|
320,659
|
|
|
|
|
|
|
|
|
|
32,916
|
|
20,134
|
|
|
|
|
|
|
|
Marketing, general and administrative expenses
|
|
13,237
|
|
11,394
|
|
|
|
|
|
|
|
Foreign exchange (gains) losses
|
|
(32)
|
|
1,659
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets
|
|
(54)
|
|
206
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
5,253
|
|
1,954
|
|
|
|
|
|
|
|
Interest expense, net
|
|
1,706
|
|
2,424
|
|
|
|
|
|
|
|
|
|
20,110
|
|
17,637
|
|
|
|
|
|
|
|
Income before income taxes
|
|
12,806
|
|
2,497
|
|
|
|
|
|
|
|
Income tax expense (recovery)
|
|
|
|
|
|
Current
|
|
512
|
|
407
|
|
Future
|
|
(534)
|
|
-
|
|
|
|
|
|
|
|
|
|
(22)
|
|
407
|
|
|
|
|
|
|
|
Net income for the period
|
$
|
12,828
|
$
|
2,090
|
|
|
|
|
|
|
|
Net earnings per share
|
|
|
|
|
|
Basic
|
$
|
0.35
|
$
|
0.07
|
|
Diluted
|
$
|
0.34
|
$
|
0.07
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
|
|
|
Basic
|
|
36,698,212
|
|
29,592,494
|
|
Diluted
|
|
38,109,577
|
|
33,262,891
|
|
|
|
|
|
|
Consolidated Statements of Operations for the nine months ended Sept. 30, 2006 and 2005
(in thousands of dollars, except per share amounts) (unaudited)
|
Consolidated Statements of Operations for the nine months ended Sept. 30, 2006 and 2005
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Revenues
|
$
|
775,353
|
$
|
796,643
|
|
|
|
|
|
|
|
Costs and expenses
|
|
718,470
|
|
753,479
|
|
|
|
|
|
|
|
|
|
56,883
|
|
43,164
|
|
|
|
|
|
|
|
Marketing, general and administrative expenses
|
|
40,048
|
|
35,965
|
|
|
|
|
|
|
|
Foreign exchange losses
|
|
962
|
|
2,197
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
(131)
|
|
(806)
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
9,049
|
|
5,688
|
|
|
|
|
|
|
|
Interest expense, net
|
|
5,886
|
|
6,702
|
|
|
|
|
|
|
|
|
|
55,814
|
|
49,746
|
|
|
|
|
|
|
|
Income (loss) before income taxes and extraordinary item
|
|
1,069
|
|
(6,582)
|
|
|
|
|
|
|
|
Income tax expense (recovery)
|
|
|
|
|
|
Current
|
|
710
|
|
1,492
|
|
Future
|
|
(534)
|
|
-
|
|
|
|
|
|
|
|
|
|
176
|
|
1,492
|
|
|
|
|
|
|
|
Income (loss) before extraordinary item
|
|
893
|
|
(8,074)
|
|
|
|
|
|
|
|
Extraordinary gain, net of income taxes
|
|
-
|
|
3,444
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
$
|
893
|
$
|
(4,630)
|
|
|
|
|
|
|
|
Earnings (loss) per share before extraordinary item
|
|
|
|
|
|
Basic
|
$
|
0.03
|
$
|
(0.27)
|
|
Diluted
|
$
|
0.03
|
$
|
(0.27)
|
|
|
|
|
|
|
|
Net earnings (loss) per share
|
|
|
|
|
|
Basic
|
$
|
0.03
|
$
|
(0.16)
|
|
Diluted
|
$
|
0.03
|
$
|
(0.16)
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
|
|
|
Basic
|
|
34,746,874
|
|
29,394,024
|
|
Diluted
|
|
36,756,512
|
|
33,094,157
|