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Aecon reports second quarter results

Aug 3, 2010
- Revenues up and, as expected, earnings down versus a year ago -

Second Quarter Highlights

  • Revenues of $682 million (up 11% from the same period last year)

  • EBITDA of $25.1 million (down $6.4 million from the same period last year)

  • EPS of $0.14 per share (down $0.04 per share from the same period last year)

  • Backlog reaches a record $2.7 billion (up $1.1 billion)

  • Outlook remains positive

Toronto, Ontario – August 3, 2010 : Aecon Group Inc. (TSX: ARE) today reported its financial results for the second quarter of 2010.

Financial Highlights
   

Three Months Ended

June 30

Six Months Ended

June 30

$ millions, except per share amounts

 

2010

 

2009

     

2010

 

2009

                     

   Revenues

$

682

$

613

   

$

1,108

$

954

  Gross profit

 

55.1

 

63.4

     

82.5

 

96.0

  EBITDA

 

25.1

 

31.5

     

29.1

 

38.4

  Depreciation and amortization

 

(9.5)

 

(15.0)

     

(17.5)

 

(23.0)

  Operating profit

 

15.6

 

16.5

     

11.5

 

15.3

  Interest expense, net

 

(4.9)

 

(1.3)

     

(9.9)

 

-

  Earnings before taxes

 

10.7

 

15.2

     

1.6

 

15.3

  Income tax recovery (expense)

 

(2.2)

 

(4.6)

     

1.5

 

(4.3)

  Net income

 

7.8

 

9.9

     

1.2

 

9.3

  Earnings per share - diluted

$

0.14

$

0.18

   

$

0.02

$

0.17

  Backlog - June 30

$

2,722

$

1,660

           

 

Second quarter revenues reached a record $682 million, an increase of $68 million over the same period last year.  The increase reflects growth in the Industrial and Buildings segments, partially offset by small decreases in the Infrastructure and Concessions segments.

 

EBITDA (representing income from operations before net interest expense, income taxes, depreciation, and amortization and non-controlling interests) of $25.1 million in the quarter represents a decrease of $6.4 million from the second quarter of 2009, primarily as a result of project losses reported in the Buildings segment.

 

Depreciation and amortization expense of $9.5 million in the quarter was $5.5 million lower than in the same quarter last year, due to lower amortization charges this year on intangible assets resulting from the South Rock and Lockerbie acquisitions, and from lower amortization expense on concession rights relating to the Quito airport project.

 

Operating profit (representing income from operations before interest expense, income taxes and non-controlling interests) declined by $0.9 million to $15.6 million, as increased operating profits in the Infrastructure, Industrial and Concessions segments were offset by project losses incurred in the Buildings segment.

 

Increased interest expense related to the convertible debentures issued in the third quarter of 2009 and an increase in non-recourse project debt brought earnings before taxes (representing income from operations before income taxes and non-controlling interests) to $10.7 million in the quarter, compared to $15.2 million in the same quarter of 2009.

 

Net income of $7.8 million ($0.14 per diluted share) in the quarter compares to $9.9 million ($0.18 per diluted share) in the same period last year.

 

Outlook

The growing strength and duration of Aecon’s backlog provides management with increased visibility and confidence in its outlook, an important attribute in an economic environment that is still recovering from the recent recession. 

 

In addition, Aecon’s diverse operations and broad national presence, both of which are unmatched by any publicly traded company in the industry, allows it to mitigate the impact of downturns in any one sector or region. And its strong balance sheet, financial liquidity and substantial surety capacity, each of which are among the strongest in the Canadian industry, position Aecon well to exploit the many growth opportunities that exist in today’s market.

 

Aecon’s outlook remains positive, ” said John M. Beck, Aecon’s Chairman and CEO.  “Record backlog, the durability of the public infrastructure markets, and the now evident return to strength of the oilsands and industrial markets, combine to signal continued strong financial performance throughout 2010 and even more so into 2011 and 2012 .”


“We have taken a number of positive steps to address the continued underperformance in the Buildings segment, and we are confident that the right measures are in place,” said Aecon President Scott Balfour.  The overall results reported this quarter demonstrate the strength of Aecon’s business model, showing that we can still deliver strong overall performance even in the face of challenging markets and contracts within certain segments.”

 

Backlog and New Business Awards

 

Backlog at June 30, 2010 reached a record $2.7 billion, with all three construction segments reporting increases over the same time last year.  The largest increase occurred in the Infrastructure segment, where backlog more than doubled to $1.2 billion.

 

Notably, the number of large multi-year contracts secured over the past several months has boosted the value of Aecon’s long duration backlog (that with a duration of more than 12 months) to more than $1 billion, from $378 million a year ago. 

 

New contract awards in the quarter also reached record levels, with $1.29 billion in new awards received this year compared with $478 million in the same quarter last year.

 

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. 

 

 

A substantial portion of Aecon’s bidding pipeline and backlog includes large projects such as major highway extensions, hydroelectric plants, hospitals and public transit projects. As such, it is expected that Aecon’s new business and backlog profile will be somewhat ‘lumpy’ over the next several quarters, with large increases in some quarters, when one or more of these large projects are awarded, and little change or small declines in quarters where no large projects are awarded.

 


Second Quarter Business Highlights

 

·          In April of 2010, Aecon announced  that its Infrastructure Division had partnered with Acciona Infrastructures Canada Inc., Dragados Canada Inc., and Verreault Inc. in Nouvelle Autoroute 30 CJV, the construction joint venture carrying out the expansion of Autoroute 30 near Montreal, one of the largest projects Aecon has ever undertaken.

 

·          In June of 2010, Aecon  announced that its Infrastructure Division had partnered with Peter Kiewit Sons Co. for a $1.7 billion design build contract awarded by Ontario Power Generation for the construction of the Lower Mattagami Hydroelectric Complex, about 70 km northeast of Kapuskasing, Ontario.  Aecon’s 20% participation in this project makes it the largest single contract in Aecon’s history.

  ·          In June of 2010, Aecon invested $59 million in 3.5 million shares of Churchill Corporation.  The purchase is for investment purposes, and may also present opportunities to explore areas of mutual interest between the two companies.   

 

·          Average week day traffic on the Cross Israel Highway in June 2010 reached 134,000 vehicles, a 23% increase over June 2009.

 

·          N early 1.2 million passengers passed through the existing Quito airport in the first six months of 2010, a 9% increase over the same period in 2009 .  

 


Subsequent Events

On July 15, 2010, Aecon announced that it had signed an agreement to sell its 25% interest in the Cross Israel Highway concessionaire, Derech Eretz Highways (1997) Ltd. for $77.8 million, subject to certain adjustments on closing. The transaction agreement anticipates closing in the fourth quarter of 2010, although the sale remains subject to a number of third party approvals. The $77.8 million sale price represents approximately two times the book value of Aecon’s investment, and is expected to generate an after tax gain of approximately $30 million upon completion of the sale. 

 


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)(3)

($ millions)

Three Months

Ended June 30

 

Six Months

Ended June 30

 

   

2010

 

2009

 

 

   

2010

 

2009

 

 

Revenues

EBITDA

$

224

8.3

$

234

7.4

     

$

322

0.9

$

345

(2.9)

   

Segment operating profit (loss)

 

4.5

 

2.4

       

(5.7)

 

(10.8)

   

Segment operating margin

 

2.0%

 

1.0%

       

(1.8)%

 

(3.1)%

 

 

Backlog - June 30

             

$

1,200

$

588

   

 

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

 

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

 

(3)   Included in backlog at June 30, 2010 is $35 million (2009 – $71 million) related to the Quito airport project.  Although Aecon’s 50% share of the remaining construction revenues from this project is estimated at $61 million (2009 - $123 million), the amount reported as backlog has been reduced by $26 million (2009 - $52 million) or 42.3%.  This reduction is to reflect the fact that since Aecon has a 42.3% interest in the concession joint venture for which the Quito airport is being constructed, it cannot report revenue, and therefore does not report backlog, that effectively arises from transacting with itself.

In the Infrastructure segment, second quarter revenues of $224 million were $10 million lower than last year, as revenue increases in civil operations were offset by declines in materials, utilities and international operations.  

 

Segment operating profit of $4.5 million in the quarter represents a $2.1 million increase over the second quarter of 2009 due to operating profit increases in civil and international operations, which offset decreases in materials and utilities operations. 

 

Driven primarily by the addition of the A30 highway project near Montreal, and the Lower Mattagami hydroelectric project in Ontario, backlog at June 30th reached a record $1.2 billion, more than double the $588 million recorded at the same time last year.   New contract awards totalling $871 million were recorded in the quarter, which compares with awards of $162 million in the same period last year.

 

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

 

   

2010

 

2009

 

 

   

2010

 

2009

 

 

Revenues

EBITDA

$

141

(10.1)

$

115

1.1

     

$

280

(9.0)

$

223

0.3

   

Segment operating profit (loss)

 

(10.3)

 

0.9

       

(9.4)

 

-

   

Segment operating margin

 

(7.3)%

 

0.8%

       

(3.4)%

 

0.0%

 

 

Backlog - June 30

             

$

650

$

521

   

 

Second quarter revenues from the Buildings segment increased 22% to $141 million, due primarily to an increase in Ontario operations reflecting the impact of several large projects, including three Infrastructure Ontario projects, underway during the period.

 

The Buildings segment incurred an operating loss of $10.3 million in the quarter, compared to a profit of $0.9 million in 2009.  Most of the $11.2 million decline occurred in Ontario operations where the impact of higher revenues was offset by further losses on two large projects in Ontario that had also contributed losses in 2009.   Significant staff and management focus continues to be brought to bear to contain the issues on these two difficult projects.  

 

Backlog of $650 million at June 30, 2010 represents a $129 million increase compared to the same time last year, due largely to increases in the segment’s Ontario and Quebec operations. New contract awards totalling $104 million were recorded in the quarter, which compares with awards of $115 million in the same period last year. 

 

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, as well as Aecon’s commercial mechanical operations.  The segment includes all of the Lockerbie & Hole operations acquired last year.

 

Financial Highlights

 ($ millions)

     Three Months

       Ended June 30

 

               Six Months

            Ended June 30

 

   

2010

 

2009

 

 

   

2010

 

2009

 

 

Revenues

EBITDA

$

298

27.0

$

245

22.7

     

$

468

36.2

$

341

36.5

   

Segment operating profit

 

23.9

 

17.0

       

30.3

 

30.1

   

Segment operating margin

 

8.0%

 

6.9%

       

6.5%

 

8.8%

 

 

 Backlog - June 30

             

$

872

$

551

   

 

In the Industrial segment, second quarter revenues of $298 million were $53 million higher than in 2009, due primarily to revenue increases in both the heavy industrial and mechanical construction operations in Western Canada

 

Industrial segment operating profit of $23.9 million represents an increase of $6.9 million over the same period last year, as significant operating profit increases in heavy industrial operations in Western Canada and in Lockerbie’s Ontario-based operations offset lower profits from the segment’s construction and fabrication units in Ontario.

 

Segment backlog of $872 million compares with $551 million at the same time last year, with the increase due to higher backlog in Western Canada.  New contract awards of $290 million in the second quarter of 2010 were $110 million higher than in the same period in 2009.

 

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

 

   

2010

 

2009

 

 

   

2010

 

2009

 

 

Revenues

EBITDA

$

21

 6.6

$

  22

  7.1

     

$

42

13.2

$

47

15.6

   

Segment operating profit

 

5.0

 

3.3

       

10.2

 

7.7

   

Segment operating margin

 

24.0%

 

14.8%

       

24.4%

 

16.3%

 

 

 

Concessions segment revenues of $21 million in the second quarter were $1 million lower than last year, due primarily to a decrease from the operator of the Cross Israel Highway, a company in which Aecon holds a 30.6% interest. 

 

Segment operating profit of $5.0 million in the second quarter represents an increase of $1.7 million from the same period in 2009, primarily from 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.

 

Progress continues to be made toward resolving issues surrounding Aecon’s concession interest in the Quito International Airport project. Execution of the new commercial arrangement and legal structure negotiated in recent months remains subject to various conditions and approvals by the senior lenders and Ecuadorian authorities.  Assuming prompt and favourable approvals by these institutions and delivery of the remaining closing conditions, the effective date of the new agreement should occur in the fourth quarter of 2010.

 

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.

 

Consolidated Results

The Consolidated Results for the three months and six months ended June 30, 2010 and 2009 are available at the end of this News Release.

 

Balance Sheet Highlights

Balance Sheet Highlights

  (thousands of dollars)

 

June 30, 2010

 

Dec. 31, 2009

         

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

$

244,108

$

414,447

Other current assets

 

850,049

 

714,164

Property, plant and equipment

 

209,915

 

200,883

Other long-term assets

 

435,039

 

359,844

Total Assets

$

1,739,111

$

1,689,338

         

Current liabilities

$

954,332

$

843,826

Non-recourse project debt

 

18,409

 

70,000

Other long-term debt

 

57,531

 

63,037

Convertible debentures

 

160,071

 

158,614

Other long-term liabilities

 

98,886

 

96,469

         

Shareholders’ equity

 

449,882

 

457,392

Total Liabilities and Shareholders’ Equity

$

1,739,111

$

1,689,338

Conference Call

A conference call has been scheduled for Wednesday, August 4, 2010 at 10:30 a.m. ET to discuss Aecon’s 2010 second quarter financial results. Participants should dial 416-981-9035 or 1-800-734-8507 at least 10 minutes prior to the conference time.  The reservation number is 21477747.

A replay will be available after 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight on August 11, 2010.  The reservation number is 21477747.



Consolidated Statements of Income for the three months ended June 30, 2010 and 2009

(in thousands of dollars, except share and per share amounts) (unaudited)

 

Consolidated Statements of Income for the three months ended June 30, 2010 and 2009

 

 

2010

 

2009

 

 

 

 

 

Revenues

$

681,543

$

613,237

         

Direct costs and expenses

 

(626,403)

 

(549,816)

         
   

55,140

 

63,421

         

Marketing, general and administrative expenses

 

(30,489)

 

(31,846)

         

Foreign exchange gains (losses)

 

374

 

(142)

 

 

     

Income from construction projects accounted for using the equity method

 

411

 

-

         

(Loss) gain on sale of assets

 

(326)

 

33

         

Depreciation and amortization

 

(9,478)

 

(14,985)

         

Interest  expense

 

(7,938)

 

(3,046)

         

Interest income

 

3,025

 

1,759

         
   

(44,421)

 

(48,227)

         

Income before income taxes and non-controlling interests

 

10,719

 

15,194

         

Income tax (expense) recovery

       

Current

 

1,148

 

(1,337)

Future

 

(3,299)

 

(3,217)

         
   

(2,151)

 

(4,554)

         

Income before non-controlling interests

 

8,568

 

10,640

         

Non-controlling interests

 

(765)

 

(711)

         

Net income for the period

$

7,803

$

9,929

         

Earnings per share

 

     

Basic

$

0.14

$

0.18

Diluted

$

0.14

$

0.18

         

Weighted average number of shares outstanding

 

     

Basic

 

54,546,828

 

55,017,708

Diluted

 

71,853,148

 

56,416,294

 

 

 

Consolidated Statements of Income for the six months ended June 30, 2010 and 2009

(in thousands of dollars, except share and per share amounts) (unaudited)

 

Consolidated Statements of Income for the six months ended June 30, 2010 and 2009

 

 

2010

 

2009

 

 

 

 

 

Revenues

$

1,107,724

$

954,122

         

Direct costs and expenses

 

(1,025,237)

 

(858,073)

         
   

82,487

 

96,049

         

Marketing, general and administrative expenses

 

(58,046)

 

(56,008)

         

Foreign exchange losses

 

(414)

 

(1,718)

 

 

     

Loss from construction projects accounted for using the equity method

 

(1,712)

 

-

         

Gain on sale of assets

 

6,754

 

56

         

Depreciation and amortization  

 

(17,541)

 

(23,032)

         

Interest  expense

 

(15,773)

 

(4,682)

         

Interest income

 

5,837

 

4,665

         
   

(80,895)

 

(80,719)

         

Income before income taxes and non-controlling interests

 

1,592

 

15,330

         

Income tax recovery (expense)

 

     

Current

 

5,754

 

(2,540)

Future

 

(4,254)

 

(1,762)

         
   

1,500

 

(4,302)

         

Income before non-controlling interests

 

3,092

 

11,028

         

Non-controlling interests

 

(1,907)

 

(1,725)

         

Net income for the period

$

1,185

$

9,303

         

Earnings per share

       

Basic

$

0.02

$

0.18

Diluted

$

0.02

$

0.17

         

Weighted average number of shares outstanding

       

Basic

 

54,810,560

 

52,626,103

Diluted

 

71,001,774

 

53,968,485

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 on a selected basis internationally. Aecon is pleased to be recognized as one of the 50 Best Employers in Canada as published by Report on Business Magazine.