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Aecon reports first quarter results

May 4, 2010
Revenues up, seasonal earnings down as expected

  • Record Q1 revenues of $426 million (up 25% from same period last year)
  • EBITDA of $4.0 million (down $2.9 million from last year)
  • EPS loss of $0.12 per share (from loss of $0.01 per share last year)
  • Record Q1 backlog of $2.1 billion (up more than 50% from a year ago)
  • Outlook remains positive, with a strong second half expected


Toronto , Ontario  – May 4, 2010: Aecon Group Inc. (TSX: ARE) today reported its results for the first quarter of 2010.  

Revenue, Operating Results and Net Income
    Three Months Ended March 31
  $ millions   2010   2009
         
  Revenues $ 426 $ 341
  Gross profits   27.3   32.6
  EBITDA   4.0   6.9
  Operating loss   (4.1)   (1.1)
  Interest expense, net   (5.0)   1.3
  Income tax recovery   3.7   0.3
  Net loss for the period   (6.6)   (0.6)
  Backlog $ 2,119 $ 1,359

Revenues in the first quarter of 2010 totaled $426 million, an $85 million increase over the results reported a year ago. The increase is primarily due to a $74 million increase in the Industrial segment, which includes revenues generated from Lockerbie & Hole, acquired by Aecon in the second quarter of 2009.
Gross profits (revenues less direct costs and expenses) decreased to $27.3 million from $32.6 million in the same quarter last year, as gross margins declined from 9.6% of revenues in 2009 to 6.4% this year. Much of the decrease in gross profit can be attributed to strong performance in the Industrial segment in the first quarter of 2009 related to carry over work that was not repeated in the first quarter of 2010. 
EBITDA (representing income or loss from operations before net interest expense, income taxes, depreciation and amortization, and non-controlling interests) was $4.0 million in the quarter, a $2.9 million decline from the first quarter of 2009. Similarly, operating losses (losses from operations before net interest expense, income taxes and non-controlling interests) increased by $3.0 million to $4.1 million, as improved operating results in the Infrastructure, Buildings and Concessions segments were offset, as expected, by a decrease in Industrial earnings, largely related to the 2009 carry over work noted above. The improved Infrastructure results include a $7.0 million gain resulting from a sale of land in the quarter. 
Net loss for the quarter of $6.6 million (a $0.12 loss per share), compares to a net loss of $0.6 million in the first quarter of 2009 (a $0.01 loss per share).
Net interest expense increased by $6.3 million to $5.0 million in the first quarter of 2010, primarily as a result of higher levels of non-recourse project debt on three Infrastructure Ontario "build-finance" projects, and from interest costs related to the issuance of convertible debentures in the third quarter of 2009.  
MG&A as a percentage of revenues improved from 7.1% in the first quarter of 2009 to 6.5% in the first quarter of 2010.
Results for any one quarter, especially the first quarter of the year, should not be treated as indicative of future financial performance.
Outlook
 
“The ongoing strength, depth and durability of the public infrastructure markets in Canada, along with Aecon’s strong balance sheet, financial liquidity and substantial surety capacity, combine to signal another year of strong financial performance in 2010,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “This, combined with Aecon’s strong national presence and the improving outlook for industrial construction over the next couple of years, would suggest that 2011 and 2012 should be a period where Aecon’s financial results increasingly reflect strength in both the private sector and public sector elements of the business.”
“The ongoing strength of the bidding pipeline in Canada’s public infrastructure markets, combined with a general increase in the size and duration of the projects Aecon is winning, provide us with increased visibility regarding our outlook for these markets,” said Scott Balfour, President, Aecon Group Inc. “It is with benefit of this visibility that we remain positive about our outlook for the second half of 2010 and into 2011 and 2012.”

Backlog and New Business Awards
Backlog at March 31, 2010 was $2.1 billion, an increase of $760 million over the amount on hand at the same time last year, and a new record for backlog at the end of any first quarter. Most of the increase in backlog occurred in the Industrial segment, which includes Lockerbie & Hole, acquired by Aecon in the second quarter of 2009.
Not included in backlog, but significant to Aecon’s activities, are the revenues from Aecon’s growing alliances and supplier-of-choice arrangements that do not specify the amount of work to be carried out at any one time.  
New contract awards of $362 million in the quarter represent an increase of $66 million over awards received in the first quarter of 2009.
First Quarter Business Highlights
The January 2010 issue of Report on Business Magazine recognized Aecon, for the third year in a row, as one of the 50 Best Employers in Canada, an important strategic achievement in an industry where attracting the best people is key to profitable growth.
In January 2010, Aecon announced that its wholly-owned subsidiary, South Rock Ltd., had been awarded two contracts valued at over $119 million by Alberta Transportation and the City of Calgary. The two contracts were a $42 million contract for construction of an interchange at Crowchild Trail and Stoney Trail in Calgary, and the $77 million expansion of Highway 63 in Fort McMurray.
Progress continued in the quarter toward resolution of issues surrounding Aecon’s concession interest in the Quito International Airport project, while construction activity has been substantially reduced until the full resolution of issues is finalized. Assuming prompt approval by Ecuadorian authorities, commercial and financial close of the new agreement is expected during the second quarter of 2010. Over 1.1 million passengers passed through the existing Quito airport in the first three months of 2010, a 10% increase over the first quarter of 2009. 
Average weekday traffic on the Cross Israel Highway in March 2010 surpassed 127,000 vehicles, a 25% increase over 2009.
Subsequent to the end of the quarter, Aecon announced that it had joined the construction joint venture extending the A30 highway near Montreal, one of the largest contracts in which Aecon has participated. 
 
Segmented Results
 
Aecon reports its results in four operating 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

Three Months Ended March 31

 

$ millions

 

2010

 

2009

 

Revenues

$

98

$

112

 

EBITDA

 

(7.3)

 

(10.3)

 

Segment operating loss (1)

 

(10.2)

 

(13.2)

 

Segment operating margin  (2)

 

    (10.4)%

 

(11.8)%

 

Backlog

 

553

 

660

 

 

(1)   Segment operating profit (loss) represents the profit or loss from operations, before net interest expense, income taxes, non-controlling interests. 

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

 


First quarter revenues of $98 million in the Infrastructure segment represent a 12% decrease from the same quarter in 2009. Most of the decrease was due to a slowdown in the pace of construction at the new Quito airport as the details of the renewed concession agreement are finalized, and from civil operations in Western Canada.

 


The Infrastructure segment recorded an operating loss of $10.2 million in the first quarter of 2010, a $3 million improvement over 2009, as operating profit increases in materials and civil operations were partly offset by decreases in utilities and international operations. The improvement in materials operations was primarily due to a $7 million gain from the sale of land in the quarter.

 


Backlog at March 31, 2010 was $553 million, a $107 million decrease over the same time last year, due primarily to lower backlog in international operations and in civil operations. These decreases were partially offset by higher backlog in materials operations. New contract awards of $106 million in first three months of 2010 compared to $152 million in the prior year. Most of the decrease in new awards occurred in civil operations. Subsequent to the end of the quarter, Aecon Infrastructure announced its participation in one of the largest contracts in Aecon’s history when it joined the joint venture expanding the A30 highway near Montreal.


Buildings

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

 

Financial Highlights

Three Months Ended March 31

   

$ millions

 

2010

 

2009

   

Revenues

$

139

$

109

   

EBITDA

 

1.0

 

(0.8)

   

Segment operating profit (loss)

$

0.8

 

(1.0)

   

Segment operating margin

 

   0.6%

 

   (0.9)%

   

Backlog

 

687

 

520

   

 

First quarter revenues of $139 million in the Buildings segment represent a 28% increase over the $109 million recorded in 2009. The increase was due primarily to Ontario operations, where several large projects, including three Infrastructure Ontario projects, impacted results. This increase was partly offset by a revenue decrease in Seattle, which was primarily caused by the completion of a large multi-year project earlier this year. 

 


Segment operating profit of $0.8 million in the first three months of 2010 represents a $1.8 million improvement over 2009, as improved operating results in Quebec offset a small decline in Ontario. In addition to two large Ontario projects where the full extent of losses was realized in prior periods and where revenues continue to be recorded without corresponding margin, we have begun work on a large project in Ontario where profit recognition has yet to commence due to Aecon’s accounting policy for large multi-year contracts. Under this policy, profit is recognized only when construction reaches a stage of completion that is sufficient to reasonably determine a project’s probable results, which is generally 20%. 

 


Backlog of $687 million at March 31, 2010 was $167 million higher than at the same time last year, due to increases in the segment’s Ontario and Quebec operations. New contract awards of $89 million were recorded in 2010, down slightly from the $94 million recorded in 2009.  

Industrial

Industrial operations include all of Aecon’s industrial manufacturing and construction activities including in-plant construction, fabrication of specialty pipe, assembly of custom module units and the design and manufacture of once-through heat recovery steam generators.

Financial Highlights

         

    Three Months Ended March 31

$ millions

 

2010

 

2009

 

Revenues

$

170

$

97

 

EBITDA

 

9.2

 

13.9

 

Segment operating profit

 

6.4

 

13.2

 

Segment operating margin

 

    3.8%

 

   13.6%

 

Backlog

 

879

 

179

 

 

First quarter revenues of $170 million in the Industrial segment were 77% higher than in 2009, due primarily to the acquisition of Lockerbie & Hole in the second quarter of 2009. Revenue increases from Aecon-Lockerbie site construction projects in Western Canada, along with revenues from Lockerbie & Hole Mechanical, contributed a majority of the quarter-over-quarter revenue increase in the segment. Additional revenues from the addition of Lockerbie’s Ontario operations were more than offset by declines in the balance of Ontario fabrication and construction operations, and Innovative Steam Technologies.

 


Operating profit of $6.4 million in the quarter represents a decrease of $6.8 million from the same quarter last year. Although the Lockerbie acquisition resulted in increased segment revenues this quarter, the impact of additional revenues was more than offset by reduced margins in Ontario, as very strong contributions from a few Ontario construction projects were not repeated in 2010, and in the oilsands, which has seen a shift in mix-of-work toward site construction activity from higher margin fabrication and module assembly work.  

 


Backlog of $879 million at March 31, 2010 was $700 million higher than at the same time last year, due largely to the acquisition of Lockerbie & Hole in the second quarter of 2009. Overall, new contract awards of $150 million in the first three months of 2010 were $124 million higher than in the same period in 2009. Most of the increase in new awards occurred in Ontario and Mechanical operations.    

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 investments in transportation infrastructure concessions, including the Cross Israel Toll Highway and Quito International Airport concession companies.  

 

Financial Highlights

Three Months Ended March 31

$ millions

 

2010

 

2009

  Revenues

$

21

$

25

  EBITDA

 

6.6

 

8.5

  Segment operating profit

 

5.2

 

4.4

Segment operating margin

 

24.8%

 

17.6%

 

Concession revenues of $21 million in the first quarter of 2010 were $4 million lower than in the same quarter of 2009. The majority of the decrease came from Aecon’s interest in the operator of the Cross Israel Highway, as revenues generated in 2009 from the installation of tolling equipment on a new section of the highway were not repeated in 2010.  

 


Segment operating profit of $5.2 million in the quarter compares to a profit of $4.4 million in the same quarter of 2009. Higher operating profits from the Quito airport concessionaire, which includes the results from operating the existing Quito airport while the new airport is being constructed, offset a decline in operating profits from the operator of the Cross Israel Highway. The improvement in operating results from the Quito airport concession reflects the benefit of lower amortization costs in the quarter due to a lengthening of the period over which the value of the concession rights for the existing airport is being amortized.

 


Consolidated Results

 

The Consolidated Results for the first quarters of 2010 and 2009 are available at the end of this News Release.


Balance Sheet Highlights

(thousands of dollars)

 

March 31, 2010

 

Dec. 31, 2009

         

Cash and cash equivalents, restricted cash, marketable securities and term deposits

$

361,529

$

414,447

Other current assets

 

693,625

 

714,164

Property, plant and equipment

 

202,730

 

200,883

Other long-term assets

 

362,204

 

359,844

Total Assets

$

1,620,088

$

1,689,338

         

Current liabilities

$

792,627

$

843,826

Non-recourse project debt

 

76,703

 

70,000

Other long-term debt

 

57,355

 

63,037

Other long-term liabilities

 

95,957

 

96,469

Convertible debentures

 

159,331

 

158,614

Shareholders’ equity

 

438,115

 

457,392

Total Liabilities and Shareholders’ Equity

$

1,620,088

$

1,689,338

 

Conference Call

A conference call has been scheduled for Wednesday, May 5, 2010 at 10:30 a.m. ET to discuss Aecon’s 2010 first quarter financial results. Participants should dial 416-981-9024 or 1-800-732-5617 at least 10 minutes prior to the conference time of 10:30 a.m. A replay will be available after 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, May 12, 2010. The pass code is21467971.

 


Consolidated Statements of Income (Loss) for the three months ended March 31, 2010 and 2009(in thousands of dollars, except share and per share amounts) (unaudited) 

Consolidated Statements of Income (Loss) for the three months ended March 31, 2010 and 2009
   

2010

 

2009

         

Revenues

$

426,181

$

340,885

         

Direct costs and expenses

 

(398,834)

 

(308,257)

         
   

27,347

 

32,628

         

Marketing, general and administrative expenses

 

(27,557)

 

(24,162)

         

Foreign exchange losses

 

(788)

 

(1,576)

         

Loss from investments accounted for using the equity method

 

(2,123)

 

-

         

Gain on sale of assets

 

7,080

 

23

         

Depreciation and amortization

 

(8,063)

 

(8,047)

         

Interest expense

 

(7,835)

 

(1,636)

         

Interest income

 

2,812

 

2,906

         
   

(36,474)

 

(32,492)

         

Income (loss) before income taxes and non-controlling interests

 

(9,127)

 

136

         

Income tax recovery (expense)

       

Current

 

4,606

 

(1,203)

Future

 

(955)

 

1,455

         
   

3,651

 

252

         

Income (loss) before non-controlling interests

 

(5,476)

 

388

         

Non-controlling interests

 

(1,142)

 

(1,014)

         

Net loss for the period

$

(6,618)

$

(626)

         

Loss per share

       

Basic

$

(0.12)

$

(0.01)

Diluted

$

(0.12)

$

(0.01)

         

Weighted average number of shares outstanding

       

Basic

 

55,077,223

 

50,207,924

Diluted

 

69,888,645

 

50,953,865