- Margins strengthen on record Q2 revenue
- Q2 Earnings before taxes more than double to $24.3 million
- Net income improves to a Q2 record $15.6 million or $0.31 per share
- Backlog of $1.48 billion is the largest in Aecon’s history
- Outlook continues to strengthen
Toronto, Ontario - August 5, 2008: Aecon Group Inc. (TSX: ARE) today reported record second quarter results as revenues, margins, and net income all increased over those reported a year earlier.
|
Revenue, Operating Results and Net Income
|
|
|
|
Three Months Ended June 30
|
Six Months Ended
June 30
|
|
$ millions, except per share amounts
|
|
2008
|
|
2007
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
438
|
$
|
338
|
|
|
$
|
740
|
$
|
580
|
|
Gross margin
|
|
51.7
|
|
32.3
|
|
|
|
70.3
|
|
51.2
|
|
EBITDA
|
|
32.9
|
|
20.4
|
|
|
|
37.4
|
|
25.4
|
|
Operating profit
|
|
26.5
|
|
14.1
|
|
|
|
25.2
|
|
14.3
|
|
Interest expense
|
|
(2.3)
|
|
(3.1)
|
|
|
|
(4.4)
|
|
(5.4)
|
|
Earnings before taxes
|
|
24.3
|
|
11.1
|
|
|
|
20.8
|
|
8.8
|
|
Income taxes
|
|
(8.2)
|
|
(1.2)
|
|
|
|
(4.2)
|
|
(1.8)
|
|
Net income
|
|
15.6
|
|
9.7
|
|
|
|
15.9
|
|
6.8
|
|
Earnings per share
|
$
|
0.31
|
|
0.24
|
|
|
$
|
0.34
|
|
0.18
|
|
Backlog - June 30
|
$
|
1,479
|
$
|
1,208
|
|
|
|
|
|
|
Second quarter revenues reached a record $438 million, a 29% increase from last year, as increases in the Buildings, Industrial and Concessions segments offset a decline in the Infrastructure segment.
Gross margin (representing revenues less direct costs and expenses) increased from $32.3 million (or 9.6% of revenues) in the second quarter of 2007 to $51.7 million (or 11.8% of revenues) in the second quarter of 2008, as gross margin improved in all operating segments.
EBITDA (representing income from operations before interest expense, income taxes, depreciation, amortization and non-controlling interests) grew to $32.9 million in the quarter, an increase of 61% over the $20.4 million recorded in the second quarter of 2007.
Operating profit (representing income from operations before interest expense, income taxes and non-controlling interests) increased to $26.5 million from $14.1 million in the same quarter last year, an increase of 88%, as increases in the Buildings, Industrial and Concessions segments offset a decline in the Infrastructure segment.
Earnings before taxes (representing income from operations before income taxes and non-controlling interests) reached a second quarter record $24.3 million, more than doubling the $11.1 million earned in the same quarter of 2007.
Net income grew to a second quarter record $15.6 million ($0.31 per diluted share) from $9.7 million in the same period last year ($0.24 per diluted share). Net income of $15.9 million in the first half of 2008 ($0.34 per diluted share) was more than double the $6.8 million reported in the same period of 2007 ($0.18 per diluted share).
Outlook
“Aecon’s outlook has never been stronger,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “The record results achieved in the second quarter continue the upward momentum that Aecon has established over the last two years.”
“The ongoing strength of Aecon’s core markets, especially in the energy and transportation sectors in Canada, bode well for continued strong financial performance,” said Scott Balfour, President and CFO, Aecon Group Inc. “And our record backlog is a strong positive signal that the best is yet to come for Aecon.”
Backlog and New Business Awards
Backlog at June 30, 2008 reached a record $1.48 billion, $271 million (or 22%) higher than the backlog reported at same time last year, as backlog growth was reported in each of the Infrastructure, Buildings and Industrial segments.
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 $686 million were booked in the second quarter, compared to $710 million in the second quarter of 2007.
Second Quarter Business Highlights
- Net income of $15.6 million in the quarter made this the most profitable second quarter in Aecon’s history.
- In the second quarter, Aecon added a co-surety partner to its surety program and in the process more than doubled its available surety capacity.
- During the quarter, Aecon completed an equity financing that generated net proceeds of approximately $69.6 million.
- Average weekday traffic on the Cross Israel Highway in June 2008 surpassed 101,000, a 13% increase over June 2007.
- Almost 2.2 million passengers passed through the existing Quito International Airport in the first half of 2008, a 6% increase from the same period last year.
Segmented Results
Aecon reports its results in four segments: Infrastructure, Buildings, Industrial and Concessions.
Infrastructure
The Infrastructure segment includes all aspects of civil construction from highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction.
|
Financial Highlights
(1)(2)
($ millions)
|
Three Months
Ended June 30
|
|
Six Months
Ended June 30
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
2008
|
|
2007
|
|
|
|
Revenues
|
$
|
148.6
|
$
|
161.7
|
|
|
|
$
|
243.3
|
$
|
256.8
|
|
|
|
Segment operating profit (loss)
|
|
4.7
|
|
8.7
|
|
|
|
|
(2.2)
|
|
6.6
|
|
|
|
Return on revenue
|
|
3.1%
|
|
5.4%
|
|
|
|
|
(0.9)%
|
|
2.6%
|
|
|
|
Backlog - June 30
|
$
|
600
|
|
531
|
|
|
|
|
|
|
|
|
|
(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.
In the Infrastructure segment, second quarter revenues of $149 million were $13 million lower than last year, primarily as a result of the wrap-up of two large power generation and tunneling projects in Ontario. Partially offsetting this decline were increases in the Alberta, Karson and Alarie business units.
Operating profit of $4.7 million in the Infrastructure segment represents a $4.0 million decrease over the same quarter last year. The second quarter of 2008 benefited from the commencement of profit recognition from construction of the Quito international airport, which reached 26% completion in the quarter, while the second quarter of 2007 included a $3.4 million pre-tax gain on the sale of Aecon’s right to participate in the joint venture building an extension of the Cross Israel Highway. While operating profits in roadbuilding and utilities operations did not change significantly quarter-over-quarter, lower operating profits were reported by the segment’s heavy civil operations for the reasons noted in the paragraph above.
Segment backlog at June 30th was $600 million, a 13% increase from the same time in the prior year, primarily as a result of higher backlog in the roadbuilding operations.
Buildings
The Buildings segment includes all aspects of Aecon’s commercial, institutional and multi-unit residential building construction and renovation activities.
|
Financial Highlights
($ millions)
|
Three Months
Ended June 30
|
|
Six Months
Ended June 30
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
2008
|
|
2007
|
|
|
|
Revenues
|
$
|
109.4
|
$
|
79.2
|
|
|
|
$
|
217.6
|
$
|
142.4
|
|
|
|
Segment operating profit
|
|
0.7
|
|
(1.0)
|
|
|
|
|
2.3
|
|
(1.2)
|
|
|
|
Return on revenue
|
|
0.6%
|
|
(1.3)%
|
|
|
|
|
1.1%
|
|
(0.9)%
|
|
|
|
Backlog - June 30
|
$
|
496
|
|
349
|
|
|
|
|
|
|
|
|
|
Second quarter revenues of $110 million in the Buildings segment were $30 million, or 38%, higher than 2007. Most of the revenue increases came from the segment’s operations in Toronto and Seattle, where large project awards received in the second half of 2007 have now ramped up.
Segment operating profit of $700,000 in the second quarter was $1.7 million higher than the same quarter last year, largely due to the volume increases noted above in the Toronto and Seattle operations. In addition, strong market conditions in the Vancouver area helped Scott Management Ltd., in which Aecon has a 49% interest, achieve improved performance. Partially offsetting these increases was a quarter-over-quarter decline in operating profits in the Montreal operations primarily due to profit writedowns on some projects, and increased operating costs as it relocated its operations in 2008. Recoveries of some of the writedowns are expected in future periods.
Backlog of $496 million at the end of the second quarter of 2008 was $146 million higher than at the same time last year with the largest increase occurring in the segment’s Toronto operations.
Industrial
Industrial operations include all of Aecon’s industrial manufacturing and construction activities from in-plant construction to the fabrication of specialty pipe and the design and manufacture of Once Through Steam Generators.
Financial Highlights
($ millions)
|
Three Months
Ended June 30
|
|
Six Months
Ended June 30
|
|
| |
|
2008
|
|
2007
|
|
|
|
|
2008
|
|
2007
|
|
|
| Revenues |
$ |
162.5 |
$ |
92.6 |
|
|
|
$ |
253.4 |
$ |
166.7 |
|
|
|
Segment operating profit
|
|
20.8
|
|
7.0
|
|
|
|
|
24.6
|
|
9.9
|
|
|
| Return on revenue |
|
12.8% |
|
7.5% |
|
|
|
|
9.7% |
|
6.0% |
|
|
| Backlog - June 30 |
$ |
385 |
|
330 |
|
|
|
|
|
|
|
|
|
In the Industrial segment, second quarter revenues of $163 million were $70 million higher than in 2007. While all segments reported higher revenues, construction operations in Ontario reported the strongest growth, with a $52 million increase over the same quarter last year.
Operating profit in the Industrial segment for the second quarter was $20.8 million, compared to $7.0 million in the same period for 2007. Of the $13.8 million improvement, construction operations in Ontario were up $8.3 million and Western operations increased $5.7 million. Higher volumes and generally improved margins contributed to most of the operating profit increases. The 2008 second quarter results also benefitted from the commencement of profit recognition on a large multi-year contract which reached 20% completion in the second quarter.
Segment backlog of $385 million is $55 million higher than at the same time last year, with increases in all operating units except Western Canada. The largest increase occurred in Ontario Construction, due in large part to a project award in late 2007 for the East Windsor Cogeneration project. Also of note, IST’s backlog of $74 million is currently at the highest level in this unit’s history.
Concessions
The Concessions segment includes the development, operation and financing of infrastructure projects by way of public-private partnership, build-own-operate-transfer or other alternative financing contract structures. This segment focuses primarily on the operations, management, maintenance and enhancement of investments in transportation infrastructure concessions, including the Cross Israel Toll Highway and Quito International Airport concession companies.
Financial Highlights
($ millions)
|
Three Months
Ended June 30
|
|
Six Months
Ended June 30
|
|
| |
|
2008
|
|
2007
|
|
|
|
|
2008
|
|
2007
|
|
|
| Revenues |
$ |
15.2 |
$ |
13.6 |
|
|
|
$ |
30.5 |
$ |
27.3 |
|
|
|
Segment operating profit
|
|
0.3
|
|
(0.9)
|
|
|
|
|
3.8
|
|
2.6
|
|
|
| Return on revenue |
|
16.1% |
|
9.1% |
|
|
|
|
12.4% |
|
9.6% |
|
|
Revenues in the second quarter of 2008 for the Concessions segment were $15 million, a $2 million increase compared to 2007.
The segment operating profit of $2.4 million in the second quarter was an improvement of $1.2 million compared to the same quarter last year, with increases from both the Quito airport concessionaire and Aecon’s interest in the Operator of the Cross Israel Highway.
While Aecon’s investment in the Cross Israel Highway concession continues to grow in value, this increasing value will not be reflected in earnings until a dividend is received or a portion of the investment is sold. As such, even though the Cross Israel Highway is performing well and is generating strong operating cash flow, Aecon has not reported any revenues or profits from this investment. The project remains on track to deliver an expected 15% after-tax internal rate of return (“IRR”) on Aecon’s investment.
Aecon does not include in its reported backlog potential revenues from operations management contracts and concession agreements. As such, while Aecon expects future revenues from its concession assets, no concession backlog is reported at June 30.
Corporate and Other
Marketing, general and administrative expenses (“MG&A”) in the second quarter of 2008 were higher than the corresponding periods in 2007 by $1.3 million. The increases resulted partly from higher compensation costs and partly because 2007 MG&A costs were net of a one-time payment to compensate Aecon for assuming a former shareholder’s guarantee obligations related to the Nathpa Jhakri hydro-electric project in India.
Also impacting the Corporate operating loss was an unfavourable decrease in foreign exchange gains quarter-over-quarter of $0.5 million.
Consolidated Results
The Consolidated Results for the three months and six months ended June 30, 2008 and 2007 are available at the end of this News Release.
Balance Sheet Highlights
| (thousands of dollars) |
|
June 30, 2008 |
|
Dec. 31, 2007 |
| |
|
|
|
|
| Cash, cash equivalents, restricted cash and restricted term deposits and marketable securities |
$ |
213,596 |
$ |
169,234 |
| Other current assets |
|
430,164 |
|
434,015 |
| Property, plant and equipment |
|
94,589 |
|
97,105 |
| Other long-term assets |
|
226,581 |
|
210,298 |
|
Total Assets
|
$
|
964,930
|
$
|
910,652
|
| |
|
|
|
|
| Current liabilities |
$ |
415,813 |
$ |
439,984 |
| Long-term debt |
|
131,469 |
|
132,710 |
| Other long-term liabilities |
|
84,624 |
|
112,549 |
| Shareholders’ equity |
|
333,024 |
|
225,409 |
|
Total Liabilities and Shareholders’ Equity
|
$
|
964,930
|
$
|
910,652
|
Conference Call
A conference call has been scheduled for Wednesday, August 6, 2008 at 10:30 a.m. ET to discuss Aecon’s second quarter and first six months financial results. Participants should dial 416-626-4100 or 1-800-558-5253 at least 10 minutes prior to the conference time and enter reservation number 21389955.
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, August 13, 2008. The pass code is 21389955 followed by the number sign.
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. Aecon is pleased to be recognized as one of the 50 Best Employers in Canada as published by Report on Business Magazine.
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 discussed in greater detail in the section entitled “Risk Factors and Uncertainties” in Management’s
Discussion and Analysis of operating results and Financial Condition for the year ended December 31, 2007 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 Income for the three months ended June 30, 2008 and 2007
(in thousands of dollars, except share and per share amounts) (unaudited)
| |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
Revenues
|
$ |
437,651
|
$ |
338,271
|
| |
|
|
|
|
|
Direct costs and expenses
|
|
(385,913)
|
|
(305,966)
|
| |
|
51,738
|
|
32,305
|
| |
|
|
|
|
| |
|
|
|
|
|
Marketing, general and administrative expenses
|
|
(20,294)
|
|
(15,495)
|
| |
|
|
|
|
|
Foreign exchange losses
|
|
(220)
|
|
(426)
|
| |
|
|
|
|
|
Gain (loss) on sale of assets
|
|
(114)
|
|
3,399
|
| |
|
|
|
|
|
Depreciation and amortization
|
|
(6,367)
|
|
(6,336)
|
| |
|
|
|
|
|
Interest expense
|
|
(2,266)
|
|
(3,060)
|
| |
|
|
|
|
|
Interest income
|
|
1,775
|
|
678
|
| |
|
|
|
|
| |
|
(27,486)
|
|
(21,240)
|
| |
|
|
|
|
Income before income taxes and
non-controlling interests
|
|
24,252
|
|
11,065
|
| |
|
|
|
|
|
Income tax (expense) recovery
|
|
|
|
|
| Current |
|
(630)
|
|
(1,875)
|
| Future |
|
(7,616)
|
|
637
|
| |
|
|
|
|
| |
|
(8,246)
|
|
(1,238)
|
| |
|
|
|
|
|
Income before non-controlling interests
|
|
16,006
|
|
9,827
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
(411)
|
|
(96)
|
| |
|
|
|
|
|
Net income for the period
|
$ |
15,595
|
$ |
9,731
|
| |
|
|
|
|
|
Net earnings per share
|
|
|
|
|
| Basic |
$ |
0.32
|
$ |
0.26
|
| Diluted |
$ |
0.31
|
$ |
0.24
|
| |
|
|
|
|
|
Average number of shares outstanding
|
|
|
|
|
| Basic |
|
49,396,330
|
|
37,035,381
|
| Diluted |
|
50,355,576
|
|
46,907,228
|
| |
|
|
|
|
Consolidated Statements of Income for the six months ended June 30, 2008 and 2007
(in thousands of dollars, except share and per share amounts) (unaudited)
| |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
Revenues
|
$
|
739,611
|
$ |
580,056 |
| |
|
|
|
|
|
Direct costs and expenses
|
|
(669,350)
|
|
(528,842) |
| |
|
73,261
|
|
51,214 |
| |
|
|
|
|
| |
|
|
|
|
|
Marketing, general and administrative expenses
|
|
(36,443)
|
|
(30,455) |
| |
|
|
|
|
|
Foreign exchange gains (losses)
|
|
109
|
|
(561) |
| |
|
|
|
|
|
Loss (gain) on sale of assets
|
|
(167)
|
|
3,387 |
| |
|
|
|
|
|
Depreciation and amortization
|
|
(12,241)
|
|
(11,191) |
| |
|
|
|
|
|
Interest expense
|
|
(4,389)
|
|
(5,437) |
| |
|
|
|
|
|
Interest income
|
|
3,659
|
|
1,859 |
| |
|
|
|
|
| |
|
(49,472)
|
|
(42,398) |
| |
|
|
|
|
|
Income before income taxes and non-controlling interests
|
|
20,789
|
|
8,816 |
| |
|
|
|
|
|
Income tax (expense) recovery
|
|
|
|
|
| Current |
|
(1,291)
|
|
(2,956) |
| Future |
|
(2,947)
|
|
1,149 |
| |
|
|
|
|
| |
|
(4,238)
|
|
(1,807) |
| |
|
|
|
|
|
Income before non-controlling interests
|
|
16,551
|
|
7,009 |
| |
|
|
|
|
|
Non-controlling interests
|
|
(680)
|
|
(252) |
| |
|
|
|
|
|
Net income for the period
|
$
|
15,871
|
$ |
6,757 |
| |
|
|
|
|
|
Net earnings per share
|
|
|
|
|
| Basic |
$
|
0.35
|
$ |
0.18 |
| Diluted |
$
|
0.34
|
$ |
0.18 |
| |
|
|
|
|
|
Average number of shares outstanding (note 9)
|
|
|
|
|
| Basic |
|
49,902,214
|
|
36,786,298 |
| Diluted |
|
48,592,740
|
|
46,594,895 |