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Aecon reports year end results for 2010

Mar 8, 2011
  • Revenues increase to $2.75 billion

  • Operating income and EBITDA growth in the Infrastructure and Concessions segments are offset by declines in the Industrial segment

  • Net income declines to $27.3 million or $0.50 per share ($0.49 per diluted share)

  • Backlog reaches a year end record $2.45 billion

  • Outlook remains positive overall

 

Toronto, Ontario – March 8, 2011: Aecon Group Inc. (TSX: ARE) today reported its financial results for the fourth quarter and full year 2010.

 

Revenue, Operating Results and Net Income

 

Revenue, Operating Results and Net Income

 

 

Three Months Ended December 31

Year Ended

December 31

 $ millions, except per share amounts

 

2010

 

2009

 

 

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 Revenues

$

838

$

600

 

 

$

2,746

$

2,261

 Gross profit

 

19.8

 

71.5

 

 

 

160.6

 

243.7

 EBITDA

 

30.1

 

40.0

 

 

 

102.2

 

124.7

 Depreciation and  amortization

 

(12.3)

 

(10.9)

 

 

 

(40.3)

 

(48.4)

 Operating profit

 

17.8

 

29.1

 

 

 

61.9

 

76.2

 Interest expense, net

 

(9.0)

 

(4.0)

 

 

 

(26.1)

 

(6.1)

 Earnings Before Taxes

 

8.8

 

25.1

 

 

 

35.8

 

70.1

 Income taxes

 

1.7

 

(8.4)

 

 

 

(3.7)

 

(22.3)

 Net income for the period

 

8.9

 

15.4

 

 

 

27.3

 

44.4

 Earnings per share (Basic)

 Earnings per share (Diluted)

 

0.16

0.16

 

0.28

0.26

 

 

 

0.50

0.49

 

0.82

0.80

 Backlog - December 31

$

2,447

$

2,183

 

 

 

 

 

 




Aecon’s revenues reached a record $2.75 billion in 2010, a 21% increase over 2009, with revenue growth reported in the Infrastructure, Buildings and Industrial segments, offsetting a small decline in the Concessions segment.   

 

 

Gross profit (representing revenues less direct costs and expenses) fell to $160.6 million, as gross margins as a percentage of revenues slipped to 5.8% from 10.8% a year earlier. Most of the decline was in the Industrial segment, and was due in large part to a $55 million loss disclosed early last month on Suncor’s Firebag III Central Plant Facilities project. 

 

 

 

 

EBITDA (representing income from operations before net interest expense, income taxes, depreciation, amortization and non-controlling interests) declined by 18% to $102.2 million, as lower gross profits were partially offset by a gain of $14 million related to the acquisition of the assets of Cow Harbour, and a gain of $36 million on the sale of Aecon’s interest in the Cross Israel Highway concession.

 

Depreciation and amortization expense decreased by $8.1 million to $40.3 million in 2010 due primarily to lower amortization charges 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) was $61.9 million, compared to $76.2 million last year.

 

Earnings before taxes (income before income taxes and non-controlling interests) in 2010 were $35.8 million, down from the $70.1 million recorded in 2009.  Pre-tax earnings were impacted by increased interest costs, largely related to convertible debentures issued in 2009 and 2010, and by interest on non-recourse debt related to three ‘build finance’ projects in Ontario.

 

Net income in 2010 was $27.3 million ($0.49 per diluted share), down from $44.4 million ($0.80 per diluted share) in 2009. Net income in the fourth quarter was $8.9 million ($0.16 per diluted share) compared with $15.4 million ($0.26 per diluted share) in the fourth quarter of 2009.


Outlook, Backlog and New Business Awards

 

“Aecon has established itself as a leader in some of the strongest growth sectors of the Canadian construction industry,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “I believe this strong position, along with Aecon’s record year-end backlog, the ongoing strength and durability of Canada’s infrastructure markets, and the bright future ahead for Canada’s resources and power markets, combine to signal strong financial performance in 2011 and even more so in 2012.”

 

“2010 was a challenging year,” Mr. Beck said, “but with the Buildings division now combined within the Infrastructure division, and the one-time impact of a project loss in the Industrial segment fully behind us, we have turned the page.  With the benefit of lessons learned, I believe Aecon’s outlook for 2011 and 2012 is very strong.”

 

Backlog at December 31, 2010 was $2.45 billion, a 12% increase over a year ago, as a doubling of backlog in the Infrastructure segment offset declines in the Buildings and Industrial segments. Notably, 40% of Aecon’s 2010 year-end backlog is set to be performed in 2012, 2013 and beyond, providing management with increased medium-term visibility. New contract awards reached a record $3.0 billion in 2010, compared with $2.6 billion in 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 and/or value of work to be carried out is not specified.

 

Fourth Quarter Business Highlight

·         In October 2010, Maclean’s magazine and Hewitt Associates recognized Aecon as one of the Best Employers in Canada.  It was the fourth consecutive year Aecon received the honour.

 

·         In November 2010, a group led by Aecon was awarded a $279 million contract by the Toronto Transit Commission to complete the first leg of the Toronto-York Spadina Subway Extension.  The contract was the first major award won by the newly combined Infrastructure and Buildings divisions.

 

·         In December 2010, Aecon signed a new three and a half-year $300 million credit facility, replacing its $100 million facility that was due to expire in 2011. 

 

·         Also in December 2010, Aecon completed the sale of its 25% interest in the Cross Israel Highway concessionaire, Derech Eretz Highways (1997) Ltd.  The $82.3 million sale generated cash proceeds to Aecon of approximately $69 million and an after tax gain of approximately $30 million.

 

 

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 and mining services.

 

Financial Highlights (1)(2)

($ millions)

Three Months

Ended December 31

 

Year Ended

December 31

 

 

 

2010

 

2009

 

 

 

 

2010

 

2009

 

 

 Revenues

$

387

$

251

 

 

 

$

1,095

$

937

 

 

 EBITDA

 

31.3

 

40.4

 

 

 

 

79.2

 

69.5

 

 

 Segment operating profit

 

24.3

 

37.7

 

 

 

 

61.1

 

51.8

 

 

 Operating Profit Margin

 

6.3%

 

15.0%

 

 

 

 

5.6%

 

5.5%

 

 

 Backlog - December 31

$

1,146

$

546

 

 

 

 

 

 

 

 

 

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

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

 

In 2010, revenues in the Infrastructure segment reached a record $1.1 billion, a 17% increase over 2009, as revenue increases from civil, materials, utilities and mining operations offset a decrease in international operations.  The mining revenue reflects the ramp-up of Aecon Mining following the purchase in August 2010 of Cow Harbour’s assets. 

 

Segment operating profit of $61.1 million in 2010 represents an 18% improvement over 2009, with increases in civil and materials operations, and a gain of $14 million related to the Cow Harbour acquisition, offsetting decreases in international and utilities operations.  Civil operations benefitted from higher volumes and stronger profit margins from Ontario and Quebec, including from the commencement of profit recognition on Quebec’s Autoroute 30, which reached 20% completion during 2010.   

 

Backlog at December 31, 2010 was $1.1 billion, a $600 million increase over last year, reflecting several large awards made in 2010 including the Lower Mattagami Hydroelectric Complex in Ontario, the Autoroute 30 project in Quebec, and the Waneta Dam project in B.C.  New contract awards nearly doubled from $862 million last year to $1.7 billion in 2010.     

 


Buildings

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

 

 

 

Financial Highlights

($ millions)

Three Months

Ended December 31

 

   Year Ended

     December 31

 

 

 

2010

 

2009

 

 

 

 

2010

 

2009

 

 

 Revenues

$

136

$

134

 

 

 

$

539

$

478

 

 

 EBITDA

 

(0.3)

 

(16.2)

 

 

 

 

(11.7)

 

(14.8)

 

 

 Segment operating profit (loss)

 

(0.4)

 

(16.4)

 

 

 

 

(12.5)

 

(15.5)

 

 

 Operating Profit Margin

 

(0.3)%

 

(12.2)%

 

 

 

 

(2.3)%

 

(3.2)%

 

 

 Backlog – December 31

$

635

$

737

 

 

 

 

 

 

 

 

 

 

The Buildings segment recorded revenues of $539 million in 2010, representing a 13% increase over the previous year.  The increase resulted primarily from growth in Ontario, Quebec and Aecon’s 49% interest in Scott Management Limited.  These increases were partly offset by a revenue decrease in Seattle due to completion of a large multi-year project in the first quarter of 2010. 

 

The Buildings segment incurred an operating loss of $12.5 million in 2010 compared to a loss of $15.5 million in 2009.  Most of the operating loss in 2010 arose in Ontario operations where the impact of higher revenues was offset by further losses on two large projects which had also negatively impacted results in 2009.  In September, Aecon announced a realignment of its internal management structure such that the Buildings division now forms part of Aecon’s Infrastructure Group.  This realignment will more fully capitalize on the combined strengths and potential synergies of the two organizations.

 

Backlog of $635 million at the end of 2010 represents a $102 million decline from 2009, with most of the decrease occurring in the segment’s Ontario operations.  New contract awards in 2010 totalled $437 million, and included the TTC subway expansion noted above.  This compares with awards of $681 million in 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.

 

Financial Highlights

 ($ millions)

Three Months

Ended December 31

Year Ended

December 31

2010

2009

 

2010

2009

 Revenues

$

310

$

191

$

1,044

$

748

 EBITDA

(38.1)

10.8

(4.8)

62.8

 Segment operating profit (loss)

(41.8)

7.3

(17.5)

50.5

 Operating Profit Margin

(13.5)%

3.8%

(1.7)%

6.7%

 Backlog – December 31

$

666

$

900

 

2010 Revenues of $1.0 billion in the Industrial segment were 40% higher than in 2009.  Increases in site construction work in the heavy industrial unit in Western Canada, and from the segment’s mechanical unit, contributed the majority of the year-over-year revenue increase.  The increase also reflects the acquisition of Lockerbie & Hole in April 2009, which contributed a full year’s revenue in 2010 compared to nine month’s revenue in 2009.  Partly offsetting these increases were revenue decreases in Ontario and, to a lesser extent, in Eastern Canada. 

 

A segment operating loss of $17.5 million in 2010 compares to a profit of $50.5 million in the prior year.  The decline in operating results reflects the generally lower profit margins achieved in recent quarters due to weaker market conditions for industrial services across Canada, as well as the previously noted loss of $55 million on the Firebag III project.   

 

Backlog of $666 million at December 31, 2010 was $234 million lower than last year, primarily due to lower backlog in Western Canada.  Overall, new contract awards of $810 million in the segment were $152 million lower than in the previous year.  A majority of the year-over-year decrease in new awards occurred in Western Canada operations.

 


Concessions

The Concessions segment includes the development, operation, construction and financing of infrastructure projects by way of public-private partnership or other alternative financing contract structures. This segment focuses primarily on the operations, management, maintenance and enhancement of investments in transportation infrastructure concessions. 

 

Financial Highlights

($ millions)

  Three Months

   Ended December 31

         Year Ended

           December 31

 

2010

2009

 

2010

2009

 Revenues

$

25

$

28

$

91

$

107

 EBITDA

42.8

10.1

63.8

29.8

 Segment operating profit

42.5

6.5

58.7

14.0

 Operating Profit Margin

171.4%

23.0%

64.3%

13.1%

 

 

Revenues of $91 million in the Concessions segment were $16 million lower than in 2009.  The decrease stemmed mostly from Aecon’s interest in the operator of the Cross Israel Highway, which recorded construction-related revenue in 2009 from a highway expansion project that was not repeated in 2010.

 

Segment operating profit of $58.7 million in 2010 compared to a profit of $14.0 million in 2009.  The increased profit was due in large part to a $36 million pre-tax gain that resulted from the sale of Aecon’s 25% interest in the Cross Israel Highway concessionaire, Derech Eretz Highways (1997) Ltd.  Higher operating profits from the operation of the existing Quito airport while the new airport is being constructed, also contributed to the higher operating profits in 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 December 31.

 

 Balance Sheet Highlights

 

Balance Sheet Highlights

 (thousands of dollars)

Dec. 31, 2010

 

Dec. 31, 2009

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

$

308,653

$

414,447

Other current assets

1,014,088

714,164

Property, plant and equipment

423,737

200,883

Other long-term assets

344,360

359,844

Total Assets

$

              2,090,838

$

1,689,338

Current liabilities

$

1,032,987

$

843,826

Non-recourse project debt

130,600

 

70,000

Other long-term debt

115,511

 

63,037

Convertible debentures

245,004

158,614

Other long-term liabilities

90,778

91,540

Equity

475,958

462,321

Total Liabilities and Equity

$

2,090,838

$

1,689,338


Conference Call

 

A conference call has been scheduled for Wednesday, March 9, 2011 at 10:30 a.m. ET to discuss Aecon’s 2010 year-end financial results. Participants should dial 416-620-5683 or 1-800-268-2160 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, March 16, 2011. The pass code is 21513691.

Consolidated Statements of Income for the three months ended December 31, 2010 and 2009

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

 

Consolidated Statements of Income for the three months ended December 31, 2010 and 2009

 

 

2010

 

2009

 

 

 

 

 

Revenues

$

838,338

$

599,770

Direct costs and expenses

 

(818,521)

(528,312)

19,817

71,458

Marketing, general and administrative expenses

 

(29,730)

 (30,564)

Gain from business combination

(146)

-

Foreign exchange gains (losses)

 

435

(1,379)

Income from construction projects accounted for using the equity method

 1,518

 419

Gain on sale of assets and investments

 38,176

85

Depreciation and amortization

 

(12,286)

 (10,898)

Interest expense

(12,164)

   (8,797)

Interest income

 3,147

4,802

(11,050)

(46,332)

Income before income taxes and non-controlling interests

8,767

25,126

Income tax (expense) recovery

 

(342)

(9,433)

Current

 

 

Future

2,043

1,036

 1,701

(8,397)

Net income for the period

 

10,468

16,729

Net income attributable to non-controlling interests

 

(1,569)

(1,284)

Net income attributable to the Company

$

8,899

$

15,445

Earnings per share

 

Basic

$

0.16

$

0.28

Diluted

$

0.16

$

 0.26

Weighted average number of shares outstanding

 

Basic

54,899,878

55,100,140

Diluted

82,558,022

69,877,526

 

 


 

Consolidated Statements of Income for the years ended December 31, 2010 and 2009

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

 

Consolidated Statements of Income for the years ended December 31, 2010 and 2009

 

 

2010

 

2009

 

 

 

 

 

Revenues

$

2,746,243

$

2,260,986

Direct costs and expenses

 

(2,585,663)

(2,017,306)

160,580

243,680

Marketing, general and administrative expenses

 

(118,206)

(115,509)

Gain from business combination

13,838

-

Foreign exchange gains (losses)

 

410

(4,104)

Income from construction projects accounted for using the equity method

405

419

Gain on sale of assets and investments

45,167

182

Depreciation and amortization

 

(40,320)

(48,431)

Interest expense

(37,359)

(17,809)

Interest income

11,298

11,705

(124,767)

(173,547)

Income before income taxes and non-controlling interests

35,813

70,133

Income tax (expense) recovery

 

Current

46

(28,607)

Future

(3,730)

6,301

(3,684)

(22,306)

Net income for the year

 

32,129

47,827

Net income attributable to non-controlling interests

 

(4,821)

(3,441)

Net income attributable to the Company

$

27,308

$

44,386

Earnings per share

 

Basic

$

0.50

$

0.82

Diluted

$

0.49

$

0.80

Weighted average number of shares outstanding

 

Basic

54,758,958

53,861,298

Diluted

73,964,062

58,510,761

 

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 Maclean’s Magazine.