Toronto, Ontario – May 3, 2011: Aecon Group Inc. (TSX: ARE) today reported its results for the first quarter of 2011.
Highlights
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The key market trends in place at the beginning of the year remain largely in place, reaffirming Aecon’s positive outlook for the second half of 2011 and 2012. Outlook for the Industrial segment is driven primarily by the return to strength of Canada’s resources and power sectors, while outlook for the Infrastructure segment remains as positive as it has been in years.
- First quarter revenues reached a Q1 record $512 million, representing a 20% increase from the first quarter of 2010. Revenue growth was recorded in all three operating segments.
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As expected, seasonal losses, typical of first quarter results due to the seasonal nature of Aecon’s business, increased to $28.7 million. The year-over-year increase consisted of an unusual gain on sale of land in 2010 and expected operating losses in Aecon Mining (which is ramping up following its launch in the second half of 2010).
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Aecon has adopted International Financial Reporting Standards (IFRS) beginning this quarter. As required under IFRS, Aecon recorded a $7.6 million gain from fair valuing a derivative embedded within its convertible debentures. Including this gain, the loss per share in the quarter was $0.39. Adjusting for the impact of this gain, the loss per share was $0.49.
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Backlog at March 31, 2011 was a Q1 record $2.33 billion – a $207 million increase over the backlog in place a year earlier. Notably, medium and long-term backlog (i.e. with a duration of more than 12 months) has increased 39% over the past year, providing increased visibility and a firm foundation for the next three years in the Infrastructure segment.
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Financial Highlights
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Three Months Ended March 31
(1)
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$ millions
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2011
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2010
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| |
|
|
|
|
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Revenues
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$
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512
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$
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426
|
|
Gross profits
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16.2
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20.4
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EBITDA
(2)
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(14.0)
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(2.5)
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Depreciation and amortization
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(14.7)
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(10.0)
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Operating loss
(3)
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(28.7)
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(12.5)
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Financing charges, net
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(6.3)
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(3.5)
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Fair value gain on debentures
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7.6
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8.3
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Income tax recovery
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7.1
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3.5
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Profit attributable to non-controlling interests
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(1.2)
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(1.1)
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Loss attributable to shareholders
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(21.5)
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(5.3)
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Adjusted loss (for impact of fair value gain)
(4)
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(27.0)
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(11.3)
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Backlog
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$
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2,326
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$
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2,119
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(1) Prior period results have been restated to an IFRS basis and therefore are comparable with the current period.
(2) EBITDA represents earnings or losses before net financing expense, income taxes, depreciation and amortization, and non-controlling interests.
(3) Operating profit (loss) represents the profit (loss) from operations before net financing expense, income taxes and non-controlling interests.
(4) Adjusted profit (loss) attributable to shareholders represents the profit (loss) attributable to shareholders adjusted to exclude the after tax fair value gain (loss) on the embedded derivative portion of Aecon’s convertible debentures.
Results for any one quarter, especially the first quarter of the year, should not be treated as indicative of future financial performance.
Outlook, Backlog and New Business Awards
“The strong market position gained in key strategic sectors in recent years has positioned Aecon well in some of the most dynamic growth sectors of the Canadian industry,” said John M. Beck, Aecon’s Chairman and CEO. “In addition, Aecon’s balance sheet, financial liquidity and substantial bonding capacity, each of which is among the strongest in the Canadian industry, provide us with the resources needed to exploit the many opportunities before us.”
“Overall, I believe that Aecon’s solid market position, along with record first quarter backlog, the depth and durability evident in Canada’s infrastructure markets and the bright future of Canada’s resources and power markets, combine to signal strong financial performance in the second half of 2011 and through 2012.”
Backlog at March 31, 2010 reached $2.33 billion, as an increase in Infrastructure backlog offset a decline in Industrial backlog compared to a year earlier. New contract awards of $363 million in the quarter matched awards of $362 million in the first quarter of 2010.
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.
First Quarter Business Highlights
- In February, Terrance L. McKibbon was appointed Chief Operating Officer of Aecon Group Inc.reporting to John M. Beck, the Chairman and Chief Executive Officer.
- Also in February, Aecon finalized the restructuring of the Quito International Airport contract and project funding resumed. The restructuring provides the Ecuador authorities and the Municipality of Quito with the assurances they require, and it provides Aecon, its partners and lenders with increased certainty regarding the revenues to be expected from the project.
- In March, Aecon announced that its wholly owned subsidiary Innovative Steam Technologies (IST), had been awarded two international contracts totalling $46 million, including its largest ever design and supply contract for Wood Group GTS as part of the Dorad Energy Power Plant located near Ashkelon, Israel.
- Also in March, Aecon commenced a normal course issuer bid that enables it to purchase up to 5,527,277 common shares of Aecon over a 12-month period. As at March 31, 2011, 192,200 shares had been purchased.
Segmented Results
Aecon reports its results in three operating segments: Infrastructure, Industrial and Concessions. The Buildings division, previously a segment reported separately, now forms part of Aecon’s Infrastructure segment.
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Infrastructure
The Infrastructure segment includes all aspects of civil construction from highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction, buildings construction and mining operations.
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Financial Highlights
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Three Months Ended March 31
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$ millions
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2011
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2010
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Revenues
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$
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259
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$
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238
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EBITDA
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(22.0)
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(13.3)
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Segment operating loss
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(31.2)
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(18.2)
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Segment operating margin
(1)
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(12.0)%
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(7.7)%
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Backlog
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1,776
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1,240
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(1) Segment operating margin is calculated as segment operating profit (loss) as a percentage of revenues.
First quarter revenues in the Infrastructure segment were 9% higher than 2010, with revenue increases from Mining operations and Utilities operations as well as Civil and Materials operations offsetting a decrease in Buildings revenue. The increase in Mining operations reflects the commencement of operations in August 2010 of Aecon Mining. Revenues in Buildings of $111 million in the quarter reflect a decrease of $29 million compared to 2010.
For the three months ended March 31, 2011, the operating loss in the Infrastructure segment decreased (increased) from the same period last year as follows:
($ millions)
Civil and Materials
Gain on sale of land in 2010 (7.0)
Other 0.5
Utilities 3.5
Mining (5.6)
Buildings (4.4)
Increase in Infrastructure operating loss (13.0)
Utilities operations benefitted from an improved market, especially in Ontario, compared to 2010. Aecon Mining is progressing in line with Management’s expectations, as demand for mining services continues to gain strength as oilsands development ramps up. Management continues to proceed cautiously with new business opportunities, with the focus remaining on optimizing existing operations and completing the equipment overhaul program launched following the asset purchase in the second half of 2010. Equipment availability continues to improve according to plan and is expected to reach target capability in the third quarter of 2011.
In Buildings, there was an operating loss of $5.9 million in the first quarter of 2011 compared to a loss of $1.5 million in 2010. This business was impacted by lower revenues and the ongoing impact of certain legacy projects in the first quarter of 2011. Progress continues to be made on bringing these projects to a conclusion and transitioning the business model as part of the Infrastructure group.
Backlog at March 31, 2011 was $1.8 billion, which represents a $536 million increase over the same time last year. The increase results primarily from higher backlog in Civil and Materials operations as a result of several large awards in 2010, including the construction of the Lower Mattagami hydroelectric complex in Ontario, the expansion of Quebec’s Autoroute 30 and the Waneta Dam power plant expansion in British Columbia. New contract awards totalled $226 million in the first three months of 2011, compared to $195 million in the prior year. Most of the year-over-year increase in new awards occurred in Mining and Utilities operations, offsetting declines in Buildings awards.
Industrial
Industrial operations include all of Aecon’s industrial manufacturing and construction activities including in-plant construction, fabrication of specialty pipe, assembly of custom module units and the design and manufacture of once-through heat recovery steam generators.
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Financial Highlights
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Three Months Ended March 31
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$ millions
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2011
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2010
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Revenues
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$
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234
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$
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170
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EBITDA
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8.0
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9.3
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Segment operating profit
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4.5
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6.4
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Segment operating margin
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1.9%
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3.8%
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Backlog
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550
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879
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Revenues in the first three months of 2011 were $63 million higher than in 2010. Most of the increase came from Heavy Industrial operations, reflecting higher volumes of module assembly, pipe fabrication and site construction projects in Western Canada and increased revenues in the commodities mining sector. Mechanical and IST also recorded higher revenues.
For the three months ended March 31, 2011, the operating profit in the Industrial segment increased/ (decreased) over the same period last year as follows:
($ millions)
Heavy Industrial (Construction and Fabrication) (3.5)
Mechanical 0.3
IST 1.3
Decrease in Industrial operating profit (1.9)
Operating profit in Heavy Industrial operations was impacted by lower gross profit margins, while the improvement in IST was mostly as a result of higher volumes in 2011 and from favourable quarter-over-quarter foreign exchange rate impacts.
Backlog at March 31, 2011 of $550 million was $329 million lower than the amount on hand at the same time in 2010 primarily due to lower backlog in both the Heavy Industrial and Mechanical operations in Western Canada. Overall, new contract awards of $118 million in the first three months of 2011 were $32 million lower than in the same period in 2010. Most of the year-over-year decrease in new awards occurred in Mechanical operations.
Concessions
The Concessions segment includes the development, operation and financing of infrastructure projects by way of public-private partnership, build-own-operate-transfer or other alternative financing contract structures.
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Financial Highlights
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Three Months Ended March 31
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$ millions
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2011
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2010
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Revenues
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$
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23
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$
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21
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EBITDA
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6.6
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6.6
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Segment operating profit
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5.8
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5.2
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Segment operating margin
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25.6%
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24.8%
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Most of the increase in revenues and operating profit this quarter came from Aecon’s interest in the operator of the Cross Israel Highway. The higher revenues and operating profit in 2011 reflect the addition of two new operations and maintenance contracts in Israel and higher volumes on the main highway.
With the restructuring of the Quito Airport contract finalized, construction activity has ramped up on the site, with completion of the new airport now scheduled for October 2012. At the end of the first quarter of 2011, construction was approximately 79% complete. Nearly 600,000 passengers departed through the existing Quito airport in the first three months of 2011, a 4.4% increase over the first quarter of 2010.
Consolidated Results
The Consolidated Results for the first quarters of 2011 and 2010 are available at the end of this News Release.
Balance Sheet Highlights
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Financial Highlights
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(thousands of dollars) (unaudited)
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March 31, 2011
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Dec. 31, 2010
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Cash and cash equivalents, restricted cash and marketable securities
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$
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186,241
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$
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308,653
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Other current assets
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828,223
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1,010,417
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Property, plant and equipment
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447,502
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444,276
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Other long-term assets
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369,524
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358,059
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Total Assets
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$
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1,831,490
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$
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2,121,405
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Current liabilities
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$
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717,715
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$
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1,075,038
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Non-recourse project debt
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134,074
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27,333
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Other long-term debt
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124,092
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129,435
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Convertible debentures
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243,611
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249,751
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Other long-term liabilities
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179,487
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180,250
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Equity
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432,511
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459,598
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Total Liabilities and Equity
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$
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1,831,490
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$
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2,121,405
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Conference Call
A conference call has been scheduled for Wednesday, May 4, 2011 at 10:30 a.m. ET to discuss Aecon’s 2011 first quarter financial results. Participants should dial 416-981-9039 or 1-800-945-9434 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 on May 11, 2011. The pass code is 21522213.
Consolidated Statements of Income for the three months ended March 31, 2011 and 2010 (in thousands of Canadian dollars, except share and per share amounts) (unaudited)
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Consolidated Statements of Income for the three months ended March 31, 2011 and 2010
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March 31
2011
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March 31
2010
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Revenue
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$
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512,015
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$
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426,314
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Direct costs and expenses
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(495,767)
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(405,887)
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Gross profit
|
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16,248
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20,427
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Marketing, general and administrative expenses
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(32,061)
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(27,054)
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Depreciation and amortization
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(14,669)
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(10,065)
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Income (loss) from construction projects accounted for using the equity method
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763
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(2,123)
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Other income (loss)
|
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|
1,043
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6,277
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Operating loss
|
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(28,676)
|
|
(12,538)
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|
|
|
|
|
|
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Finance income
|
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2,458
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|
2,364
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Finance costs
|
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(8,814)
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|
(5,780)
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Fair value gain (loss) on convertible debentures
|
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7,640
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|
8,250
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Loss before income taxes
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(27,392)
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|
(7,704)
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Income tax (expense) recovery
|
|
|
7,151
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3,534
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Loss for the period
|
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$
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(20,241)
|
$
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(4,170)
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Attributable to:
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|
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Shareholders
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$
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(21,483)
|
$
|
(5,312)
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Non-controlling interests
|
|
|
1,242
|
|
1,142
|
|
|
|
$
|
(20,241)
|
$
|
(4,170)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic loss per share
|
|
$
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(0.39)
|
$
|
(0.10)
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Diluted loss per share
|
|
$
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(0.39)
|
$
|
(0.12)
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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.