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Aecon reports third quarter results

Nov 2, 2010
Revenues up, net income and EPS down versus a year ago

 

Third Quarter Highlights

- Revenues up 13% from the same period last year

- Operating Profit up 3% (including gain on purchase of Cow Harbour)

- EPS of $0.27 per diluted share is down from $0.35 a year ago

- Backlog up 31% from year ago (and a record high for Q3)

- Outlook remains positive

 

Toronto , Ontario  – November 2, 2010 : Aecon Group Inc. (TSX: ARE) today reported its financial results for the third quarter of 2010.

 

Revenue, Operating Results and Net Income

 

Revenue, Operating Results and Net Income
   

Three Months Ended
September 30

Nine Months Ended
September 30

$ millions, except per share amounts

 

2010

 

2009

     

2010

 

2009

                     

   Revenues

$

800

$

707

   

$

1,908

$

1,661

  Gross profit

 

58.3

 

76.2

     

140.8

 

172.2

  EBITDA

 

43.1

 

46.3

     

72.1

 

84.7

  Depreciation and amortization

 

(10.5)

 

(14.5)

     

(28.0)

 

(37.5)

  Operating profit

 

32.6

 

31.8

     

44.1

 

47.1

  Interest expense, net

 

(7.1)

 

(2.1)

     

(17.0)

 

(2.1)

  Earnings before taxes

 

25.5

 

29.7

     

27.0

 

45.0

  Income tax expense

 

(6.9)

 

(9.6)

     

(5.4)

 

(13.9)

  Net income

 

17.2

 

19.6

     

18.4

 

28.9

  Earnings per share - diluted

$

0.27

$

0.35

   

$

0.33

$

0.53

  Backlog - September 30

           

$

2,525

$

1,924

 

Third quarter revenues reached $800 million, an increase of $93 million over the same period last year.  The increase reflects growth in the Infrastructure, Industrial and Buildings segments, only partially offset by a decrease in the Concessions segment.    

 

EBITDA (representing income from operations before net interest expense, income taxes, depreciation and amortization, and non-controlling interests) of $43.1 million in the quarter represents a decrease of $3.2 million from the third quarter of 2009, as decreases in the Industrial and Buildings segments offset increases in Infrastructure and Concessions.

 

Depreciation and amortization expense of $10.5 million in the quarter was $4.0 million lower than in the same quarter last year, due to lower depreciation and amortization charges this year on property, plant and equipment and intangible assets relating to South Rock and from lower amortization expense on concession rights relating to the Quito airport project.

 

Operating profit (representing income from operations before net interest expense, income taxes and non-controlling interests) increased by $0.8 million to $32.6 million, as increased operating profits in the Infrastructure and Concessions segments offset decreases in the Industrial and Buildings segments. Infrastructure’s operating profits include a $14.0 million gain arising from the difference between fair market value and the price at which the assets of Cow Harbour Inc. were purchased.

 

Increased interest expense related to the convertible debentures issued late in the third quarter of 2009, along with an increase in non-recourse project debt, brought net interest to $7.1 million and earnings before taxes (representing income from operations before income taxes and non-controlling interests) to $25.5 million in the quarter.  This represents a decrease in pre-tax earnings of $4.2 million compared to the same quarter last year.

 

Net income of $17.2 million ($0.27 per diluted share) in the quarter compares to $19.6 million ($0.35 per diluted share) in the same period last year.

 

Outlook

  “Aecon’s record backlog, the ongoing strength, depth and durability of the public infrastructure markets, and the increasing return to strength of the oilsands market, combine to signal a strong outlook for Aecon,” said John M. Beck, Aecon’s Chairman and CEO. “The impact of this improving market outlook should gain momentum throughout 2011 and into 2012 as lagging markets also begin to improve.”


“Aecon’s diverse and vertically integrated operations allow us to mitigate the impact of downturns in any one sector or region,” said Aecon President Scott Balfour. “In addition, Aecon’s sound financial fundamentals and substantial surety capacity, each of which is among the strongest in the industry, position us well to exploit the many profitable growth opportunities that exist in today’s market.”

 

Backlog and New Business Awards

 

Backlog at September 30, 2010 reached a third quarter record $2.5 billion, a 31% increase from the same time last year.  The largest increase occurred in the Infrastructure segment, where backlog remained over $1 billion for the second consecutive quarter.  Notably, the number of large multi-year contracts secured this year has more than quadrupled the value of Aecon’s long duration backlog (that with a duration of more than 24 months) compared to a year ago. 

 

While new business awards of $579 million in the quarter were down from the $971 million recorded in the same quarter last year, year-to-date awards reached a record $2.2 billion, compared to $1.8 billion in the first nine months of 2009. 

 

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, Aecon’s new business and backlog profile can be somewhat ‘lumpy’, 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.

 

 

 

 

 

Third Quarter Business Highlights

 

·          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., subject to third party approvals and certain adjustments on closing, for $77.8 million.  The 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.

 

·          On August 26, 2010, Aecon announced that it had completed the asset purchase of Fort McMurray based Cow Harbour Construction Ltd. (now operating as Aecon Mining). Under the asset purchase agreement, Aecon acquired substantially all of Cow Harbour’s capital assets in Alberta, including its fleet of over 500 pieces of mining equipment, as well as all of Cow Harbour’s real property, inventory, contracts, leases, licenses, intellectual property and other assets.  Aecon paid $60 million on closing and will pay a further $120 million within 90 days of the closing date.

 

·          Average week day traffic on the Cross Israel Highway in September 2010 surpassed 132,000 vehicles, a 9% increase over September 2009.

 

·          Nearly 1.8 million passengers departed through the existing Quito airport in the first nine months of 2010, an 8% increase over the same period in 2009. 

 

Subsequent Events

On October 8, 2010, Aecon announced that it had completed the issuance of convertible unsecured subordinated debentures on a bought deal basis to a syndicate of underwriters. The total gross proceeds of the offering were $92 million, including the exercise of an over-allotment option granted to underwriters.  Aecon will use the net proceeds of the offering to help fund the remaining purchase price payable in connection with the acquisition of assets from Cow Harbour Construction Ltd.

 

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 mining and utilities construction.

 

Financial Highlights (1)(2)(3)

($ millions)

Three Months
Ended September 30

 

Nine Months
Ended September 30

 
   

2010

 

2009

       

2010

 

2009

   

Revenues

EBITDA

$

386

47.0

$

  341

32.0

     

$

708

48.0

$

686

29.1

   

Segment operating profit (loss)

 

42.5

 

24.9

       

36.8

 

14.2

   

Segment operating margin

 

11.0%

 

7.3%

       

5.2%

 

2.1%

   

Backlog - September 30

             

$

1,080

$

576

   

 

(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 September 30, 2010 is $32 million (2009 – 52 million) related to the Quito airport project.  Although Aecon’s 50% share of the remaining construction revenues from this project is estimated at $55 million (2009 - $89 million), the amount reported as backlog has been reduced by $23 million (2009 - $38 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, third quarter revenues of $386 million were 13% higher than last year, due primarily to increases in civil operations in Ontario and Quebec offsetting a decline in international operations. 

 

Segment operating profit of $42.5 million in the quarter represents a $17.6 million increase over the third quarter of 2009, as increases in civil and materials operations, and from a $14 million gain related to the Cow Harbour acquisition, offset decreases in international and utilities operations. 

 

Backlog at September 30, 2010 was $1.1 billion, representing a $504 million increase over the same time last year.  The increase results primarily from awards for Aecon’s share of the construction of the Lower Mattagami Hydroelectric Complex in Ontario and the expansion of Quebec’s Autoroute 30, both of which were awarded in the second quarter of this year.  New contract awards totalled $242 million in the third quarter of 2010, compared to $328 million a year earlier.

 

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

 
   

2010

 

2009

       

2010

 

2009

   

  Revenues

 EBITDA

$

123

(2.4)

$

  121

 1.1

     

$

403

(11.5)

$

344

1.4

   

 Segment operating profit (loss)

 

(2.6)

 

  0.9

       

(12.0)

 

0.9

   

Segment operating margin

 

(2.1)%

 

0.8%

       

(3.0)%

 

0.3%

   

Backlog - September 30

             

$

574

$

630

   

 

Third quarter revenues from the Buildings segment increased $2 million to $123 million, due primarily to an increase in Quebec operations, partly offset by a decline in Ontario operations.

 

The Buildings segment incurred an operating loss of $2.6 million in the third quarter of 2010 compared to a profit of $0.9 million in 2009, with most of the decline occurring in Ontario as a result of margin reductions on certain projects.  

 

Backlog of $574 million at the end of the third quarter was $56 million lower than at the same time last year, with most of the decrease occurring in the segment’s Ontario operations.  New contract awards totalling $47 million were recorded in the third quarter, which compares with awards of $231 million in the same period of 2009. 

 

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 September 30

 

Nine Months
Ended September 30

 
   

2010

 

2009

       

2010

 

2009

   

  Revenues

 EBITDA

$

266

(2.9)

$

  216

  15.4

     

$

734

33.3

$

557

52.0

   

 Segment operating profit (loss)

 

(6.1)

 

    13.1

       

24.2

 

 43.2

   

 Segment operating margin

 

(2.3)%

 

6.1%

       

3.3%

 

7.8%

   

 Backlog - September 30

             

$

871

$

718

   

 

In the Industrial segment, third quarter revenues of $266 million were $51 million higher than in 2009, as increases in both the heavy industrial and mechanical construction operations in Western Canada offset declines in Ontario and Eastern Canada. 

 

A third quarter operating loss of $6.1 million in the Industrial segment compared to a profit of $13.1 million in the same quarter last year.  The largest decline in operating profits occurred in the heavy industrial units where weaker market conditions for industrial services in recent quarters resulted in generally lower gross profit margins, and where adjustments to margin expectations offset higher volumes.  In addition, lower volumes in some of the segment’s units contributed significantly to the lower operating profits in the current period. 

 

Segment backlog of $871 million compares with $718 million at the same time last year, with the increase due largely to higher backlog in Western Canada and Ontario.  New contract awards of $265 million in the quarter compares with $382 million in the same period last year.

 


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

 
   

2010

 

2009

       

2010

 

2009

   

 Revenues

 EBITDA

$

25

 7.8

$

  31

  4.0

     

$

67

21.0

$

79

19.6

   

Segment operating profit (loss)

 

 5.9

 

  (0.2)

       

16.1

 

 7.5

   

Segment operating margin

 

   24.1%

 

(0.7)%

       

24.3%

 

9.5%

   

 

Concessions segment revenues of $25 million in the third quarter were $7 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 $5.9 million in the third quarter represents an increase of $6.1 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. 

 

The profit improvement in the Quito airport concessionaire is mostly due to the fact that no profits were recognized by the concessionaire in the third quarter of 2009 due to the uncertainty at that time as to the financial impact on the project of a legal ruling issued by the Constitutional Court of Ecuador.

 

Progress continues to be made toward resolving issues surrounding Aecon’s concession interest in the Quito project. Execution of a new commercial arrangement and legal structure acceptable to all parties, including the Ecuadorian State and the project’s senior lenders, remains subject to various conditions and approvals by the senior lenders and Ecuadorian authorities, including the State Comptroller General.  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 September 30.

 

Consolidated Results

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

 

Balance Sheet Highlights

Balance Sheet Highlights

(thousands of dollars)

 

Sept. 30, 2010

 

Dec. 31, 2009

         

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

$

236,792

$

414,447

Other current assets

 

984,494

 

714,164

Property, plant and equipment

 

406,860

 

200,883

Other long-term assets

 

374,459

 

359,844

Total Assets

$

2,002,605

$

1,689,338

         

Current liabilities

$

1,192,722

$

843,826

Non-recourse project debt

 

22,461

 

70,000

Other long-term debt

 

57,540

 

63,037

Convertible debentures

 

160,800

 

158,614

Other long-term liabilities

 

91,904

 

91,540

         

Equity

 

477,178

 

462,321

Total Liabilities and Equity

$

2,002,605

$

1,689,338

Conference Call

A conference call has been scheduled for Wednesday, November 3, 2010 at 10:30 a.m. ET to discuss Aecon’s 2010 third 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 21485607. A replay will be available after 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight on November 10, 2010.

 


Consolidated Statements of Income for the three months ended September 30, 2010 and 2009 (in thousands of dollars, except share and per share amounts) (unaudited)

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

2010

 

2009

         

Revenues

$

800,181

$

707,094

         

Direct costs and expenses

 

(741,905)

 

(630,921)

         
   

58,276

 

76,173

         

Marketing, general and administrative expenses

 

(30,430)

 

(28,937)

         

Gain from business combination

 

13,984

 

-

         

Foreign exchange gains (losses)

 

389

 

(1,007)

         

Income from construction projects accounted for using the equity method

 

599

 

-

         

Gain on sale of assets

 

237

 

41

         

Depreciation and amortization

 

(10,493)

 

(14,501)

         

Interest  expense

 

(9,422)

 

(4,330)

         

Interest income

 

2,314

 

2,238

         
   

(32,822)

 

(46,496)

         

Income before income taxes and non-controlling interests

 

25,454

 

29,677

         

Income tax (expense) recovery

       

Current

 

(5,366)

 

(16,634)

Future

 

(1,519)

 

7,027

         
   

(6,885)

 

(9,607)

         

Net income for the period

 

18,569

 

20,070

         

Net income attributable to non-controlling interests

 

(1,345)

 

(432)

         

Net income attributable to the Company

$

17,224

$

19,638

         

Earnings per share

       

Basic

$

0.32

$

0.36

Diluted

$

0.27

$

0.35

         

Weighted average number of shares outstanding

       

Basic

 

54,516,842

 

55,045,089

Diluted

 

71,973,671

 

56,729,786

 

 

 

 






Consolidated Statements of Income for the nine months ended September 30, 2010 and 2009
 (in thousands of dollars, except share and per share amounts) (unaudited)




Consolidated Statements of Income for the nine months ended September 30, 2010 and 2009
   

2010

 

2009

         

Revenues

$

1,907,905

$

1,661,216

         

Direct costs and expenses

 

(1,767,142)

 

(1,488,994)

         
   

140,763

 

172,222

         

Marketing, general and administrative expenses

 

(88,476)

 

(84,945)

         

Gain from business combination

 

13,984

 

-

         

Foreign exchange losses

 

(25)

 

(2,725)

         

Loss from construction projects accounted for using the equity method

 

(1,113)

 

-

         

Gain on sale of assets

 

6,991

 

97

         

Depreciation and amortization

 

(28,034)

 

(37,533)

         

Interest  expense

 

(25,195)

 

(9,012)

         

Interest income

 

8,151

 

6,903

         
   

(113,717)

 

(127,215)

         

Income before income taxes and non-controlling interests

 

27,046

 

45,007

         

Income tax (expense) recovery

       

Current

 

388

 

(19,174)

Future

 

(5,773)

 

5,265

         
   

(5,385)

 

(13,909)

         

Net income for the period

 

21,661

 

31,098

         

Net income attributable to non-controlling interests

 

(3,252)

 

(2,157)

         

Net income attributable to the Company

$

18,409

$

28,941

         

Earnings per share

       

Basic

$

0.34

$

0.54

Diluted

$

0.33

$

0.53

         

Weighted average number of shares outstanding

       

Basic

 

54,711,468

 

53,443,813

Diluted

 

71,294,732

 

54,898,744

 

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 Best Employers in Canada as published by Maclean’s Magazine.