Aecon reports record results for 2007

• Margins strengthen on record revenue
• Operating profit reaches $60.8 million
• Net income improves to record $48.3 million or $1.16 per share
• Net income of $22.5 million in Q4 makes it the strongest quarter in Aecon history
• Backlog of $1.23 billion is the largest year-end backlog in Aecon’s history
• Outlook for 2008 and 2009 remains strong

 

Toronto, Ontario – March 4, 2008: Aecon Group Inc. (TSX: ARE) today reported record operating results for 2007 as margins, operating profit and net income all increased over those reported the previous year.

 

Revenue, Operating Results and Net Income

 

Revenue, Operating Results and Net Income
		Three Months Ended December 31			Twelve Months Ended December 31
$ millions		2007		2006				2007		2006
Revenues	$	482	$	338			$	1,493	$	1,113
Gross margin		48.5		39.7				142.4		96.6
EBITDA		30.8		19.1				82.7		36.5
Operating profit		26.2		13.5				60.8		21.9
Interest expense		(2.8)		(2.3)				(11.2)		(9.7)
Income taxes		(0.4)		(0.6)				(0.4)		(0.7)
Non-controlling interests		(0.4)		-				(0.8)		-
Net income (loss) for the period		22.5		10.6				48.3		11.5
Backlog - December 31	$	1,234	$	786

 

 

Revenues in 2007 totalled $1.49 billion, a 34% increase from the $1.11 billion reported last year, as increases were recorded in all four operating segments.

 

Gross margins (revenues less direct costs and expenses) increased by 47% to $142.4 million, bringing gross margins as a percentage of revenues to 9.6% from 8.7% in 2006.

 

EBITDA (representing income from operations before interest expense, income taxes, depreciation, amortization and non-controlling interests) grew to $82.7 million in 2007, an increase of 126% over the $36.5 million recorded in 2006.

 

Operating profit (representing income from operations before interest expense, income taxes and non-controlling interests) increased to $60.8 million from $21.9 million in 2006, an increase of 178%, as the Industrial, Infrastructure and Concessions segments each reported significant improvement. As expected, the Buildings segment reported a small decline of $0.2 million.

 

Net income in 2007 grew to $48.3 million ($1.16 per diluted share) from $11.5 million in 2006 ($0.31 per diluted share). Net income of $22.5 million in the fourth quarter ($0.50 per diluted share) was more than double the $10.6 million reported in the fourth quarter of 2006 ($0.28 per diluted share), making this the most profitable quarter in Aecon’s history.

 

Marketing, general and administrative expenses amounted to $71.9 million in 2007, which is $9.4 million higher than the previous year due primarily to higher volumes, the expansion of operations in western Canada, higher information technology costs and increased performance-related incentives.

 

Depreciation and amortization expense of $21.9 million is $7.3 million higher than last year due primarily to amortization of concession rights related to the existing Quito airport, which commenced in mid 2006. Foreign exchange losses of $1.6 million contrasted with gains of $0.3 million in 2006.

 

Outlook

 

“Aecon’s strong results are evidence that our strategic plan continues to have us on the right path,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “The ongoing strength of our core markets, especially in the energy and transportation infrastructure sectors in Canada, bode well for continued strong financial performance in 2008 and 2009.”

 

“The strength of our backlog and the growth we experienced in 2007 are strong positive signals for Aecon,” said Scott Balfour, President and CFO, Aecon Group Inc. “In 2008, I expect to see a continuation of the key market forces that have driven our strong bottom line results over the past year.”

 

Backlog and New Business Awards

 

Backlog at December 31, 2007, was $1,234 million, a 57% increase from the same time last year, due to backlog growth in the Buildings and Industrial segments, offset somewhat by a small decline in the Infrastructure segment (due largely to work-off on the Quito International Airport project). Not included in backlog, but important to Aecon’s prospects due to the significant volumes involved, are the expected revenues from Aecon’s growing alliances and supplier-of-choice arrangements where the amount of work to be carried out is not specified.

 

New contract awards of $1.94 billion were booked in 2007, a 47% increase from the $1.32 billion awarded in 2006.

 

Fourth Quarter Business Highlights

 

· Net income of $22.5 million in the fourth quarter of 2007 made this the most profitable quarter in Aecon’s history.

 

· In December 2007, Aecon acquired the assets of Leo Alarie and Sons, one of the largest construction companies in northern Ontario.

 

· In December 2007, Aecon was added to S&P/TSX Composite Index.

 

· Average weekday traffic on the Cross Israel Highway in December 2007 surpassed 93,000, a 15 % increase over December 2006.

 

 

· Construction of the new airport in Quito, Ecuador, is progressing well, reaching 22% completion at the end of 2007.

 

· Over 4.2 million passengers passed through the existing Quito International Airport in 2007, including more than 1 million in the fourth quarter, a 4.1% increase from the same quarter last year.

 

Segmented Results

 

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

 

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  (1)(2) ($ millions)	Three Months Ended December 31							Twelve Months Ended December 31
		2007		2006					2007		2006
Revenues	$	207	$	146				$	689	$	484
Segment operating profit		4.8		7.2					23.5		16.5
Return on revenue		2.3%		4.9%					3.4%		3.4%
Backlog - December 31	$	372	$	410

 

(1) Segment operating profit or loss represents the profit or loss from operations, before interest expense, income taxes, non-controlling interests, and corporate allocations of overhead costs and capital charges.

(2) Segment return on revenue is calculated as segment operating profit (loss) as a percentage of revenues.

 

Revenues from the Infrastructure segment increased 42% to $689 million in 2007, largely due to revenue increases from roadbuilding (much of which were from The Karson Group, acquired by Aecon in February 2007), as well as gains from heavy civil operations and utilities operations.

 

Operating profit from the Infrastructure segment grew to $23.5 million in 2007, a 42% improvement over 2006. Much of the improvement came from roadbuilding and heavy civil operations, both of which saw volume and margin growth in 2007, and from a $3.4 million gain on the sale of Aecon’s right to participate in the construction of an extension of the Cross Israel Highway. Partially offsetting these increases were risk reserves taken on a few previously completed large projects.

 

It should be noted that construction profits have not yet been recorded on the new Quito airport project. Under Aecon’s accounting policy for large multi-year contracts, profit is recognized only when construction reaches a stage of completion that is sufficient to reasonably determine a project’s probable results. This milestone is expected to be reached in the first half of 2008.

 

Backlog of $372 million at December 31, 2007 represents a decline of 9% from the same time last year, due largely to work performed on the Quito airport project and the impact of foreign exchange conversion.