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Aecon reports second quarter 2011 results

Aug 2, 2011
Revenues and operating profit up, strong outlook reaffirmed

Toronto, Ontario – August 2, 2011: Aecon Group Inc. (TSX: ARE) today reported its results for the second quarter of 2011. 

Highlights
- Second quarter revenues reached $758 million (vs. $680 million in same quarter of 2010), with gains reported in each segment. 

- EBITDA increased to $29.0 million ($22.0 million in 2010) in the quarter and operating profit grew to $13.9 million ($10.6 million in 2010), largely due to stronger results in the Infrastructure segment.

- Adjusted earnings per share of $0.07 in the quarter ($0.10 in 2010) reflects increased equipment depreciation and financing costs associated with the launch of Aecon Mining and convertible debentures issued in the fourth quarter of 2010.

- The key market factors shaping Aecon’s outlook at the beginning of the year remain largely in place, reaffirming Aecon’s positive outlook for the second half of 2011 and 2012. 

Financial Highlights
    Three Months Ended
June 30
(1)
Six Months Ended
June 30
(1)
$ millions, except per share amounts   2011   2010       2011   2010
                     
Revenues $ 758 $ 680     $ 1,271 $ 1,106
Gross profit   48.9   51.6       65.1   72.0
EBITDA (2)   29.0   22.0       14.9   19.5
Depreciation and amortization   (15.1)   (11.4)       (29.7)   (21.4)
Operating profit (loss) (3)   13.9   10.6       (14.8)   (1.9)
Financing charges, net   (6.9)   (2.9)       (13.3)   (6.5)
Fair value gain (loss) on debentures   (4.8)   2.0       2.9   10.3
Income tax recovery (expense)   0.1   (1.7)       7.2   1.8
Profit (loss) attributable to shareholders    
0.7
   
7.2
       
(20.8)
   
1.8
Adjusted profit (loss) attributable to   shareholders (4)    
Adjusted earnings (loss) per share
  (diluted)  (5)
   
4.1
 

0.07
   
5.7
 

0.10
       
(22.9)
 

(0.42)
   
(5.6)
 

(0.10)
Backlog - June 30 $ 2,181 $ 2,722            


(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.
(5)     Adjusted earnings (loss) per share (diluted) represents earnings (loss) per share calculated using adjusted profit (loss) attributable to shareholders.
Outlook, Backlog and New Business Awards
“I believe that Aecon’s position of strength in key markets and the bright future of Canada’s infrastructure, resources and power markets, combined with our focus on project execution and risk management, will result in the strengthening of Aecon’s financial performance in the second half of 2011 and through 2012,” said John M. Beck, Aecon’s Chairman and CEO.

New contract awards of $641 million in the quarter compare to $1.3 billion in the same quarter last year, reflecting the fact that two of Aecon’s largest-ever project awards were received in the second quarter of 2010. In the same context, backlog at June 30, 2011 was $2.2 billion, compared to $2.7 billion a year earlier.

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, including for example most of Aecon’s mining and utilities businesses, where the value and/or timing of work to be carried out is not specified.

Second Quarter Business Highlights

Second quarter revenues of $398 million in the Infrastructure segment were $35 million, or 10%, higher than in the same period last year, with increases from mining, utilities, and civil and materials operations offsetting a decrease in buildings operations.  The increase in mining operations reflects the commencement of operations in August 2010 of Aecon Mining.

For the three and six months ended June 30, 2011, the operating results in the Infrastructure segment increased/(decreased) from the same period last year as follows:

Financial Highlights
($ millions) Three
months ended

June 30
Six
months ended

June 30
Civil and Materials    
Gain on sale of land in 2010 - (7.0)
Other (0.5) -
Utilities 12.7 16.2
Mining (13.1) (18.7)
Buildings 13.6 9.2
Increase (decrease) in segment operating profit 12.7 (0.3)



Utilities operations benefitted from an improved market this quarter compared to 2010, especially in Ontario.  Aecon Mining is still in ramp-up mode, with its initial maintenance and repair program peaking in the first half of 2011.  As expected, these factors, along with the seasonally slow second quarter due to spring thaw in the oilsands, resulted in an operating loss in Aecon Mining.  Aecon Mining is expected to generate an operating profit in the second half of the year.  The reduction in operating losses in Buildings was primarily due to the quarter-over-quarter impact of profit write downs taken on certain projects in 2010.

New contract awards of $407 million in the quarter compare to $975 million in the same quarter last year, reflecting the fact that two of Aecon’s largest-ever project awards were received in the second quarter of 2010. Similarly, backlog at June 30, 2011 was $1.8 billion, compared to $1.9 billion a year earlier.


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
($ millions)
Three Months
Ended June 30
  Six Months
Ended June 30
    2011   2010         2011   2010
Revenues $ 335 $ 298       $ 569 $ 468
EBITDA   17.7   27.1         25.6   36.4
Segment operating profit   13.2   23.9         17.7   30.4
Operating profit margin   4.0%   8.0%         3.1%   6.5%
Backlog – June 30 $ 424 $ 872              


Second quarter revenues of $335 million in the Industrial segment were $38 million or 13% higher than in 2010.  Most of the increase in revenues came from heavy industrial operations, which benefitted from its exposure to the strong commodities mining sector.  IST also recorded higher revenues in the quarter primarily reflecting the impact of a higher order backlog this year.

For the three and six months ended June 30, 2011, operating profit in the Industrial segment increased/(decreased) over the same period last year as follows:



Financial Highlights
($ millions) Three months ended
June 30
Six months ended
June 30
 
Heavy Industrial (construction & fabrication)
 
(10.8)
 
(14.5)
Mechanical (0.4) (0.1)
IST 0.5 1.9
Decrease in segment operating profit (10.7) (12.7)



Most of the decrease in operating profit from heavy industrial operations was due to additional margin reported on the close out of a large project in the second quarter of 2010.  The improvement in IST was mostly as a result of higher volumes in 2011 and from favourable period-over-period foreign exchange rate impacts on earnings.

Backlog of $424 million at June 30, 2011 was $448 million lower than last year primarily due to lower backlog in heavy industrial and mechanical operations in Western Canada.  New contract awards of $209 million in the second quarter of 2011 were $81 million lower than in the same period in 2010.  While industrial activity has generally been slower to recover from the impact of the recession than originally anticipated, the outlook for the sector remains strong and backlog levels are expected to build over the next several quarters.



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.

Financial Highlights
($ millions)
Three Months
Ended June 30
  Six Months  
Ended June 30
 
    2011   2010         2011   2010  
Revenues $ 26 $ 21       $ 49 $ 42  
EBITDA   7.1   6.6         13.7   13.2  
Segment operating profit   6.3   5.0         12.1   10.2  
Operating profit margin   24.1%   24.0%         24.8%   24.4%  


Most of the revenue increases in 2011 have come from Aecon’s interest in the operator of the Cross Israel Highway and other affiliates in Israel. The higher revenues reflect the addition of two new operations and maintenance contracts in Israel in mid-2010 and higher volumes on the main highway.

For the three and six months ended June 30, 2011, operating profit in the Concessions segment increased/(decreased) over the same period last year as follows:


Financial Highlights
($ millions) Three months ended
June 30
Six months ended
June 30
Quito Airport Concessionaire 0.9 0.9
Operating and Maintenance Services – Israel 0.9 1.5
Other (0.5) (0.5)
Increase in segment operating profit 1.3 1.9

 

The increase in operating profits from the Quito airport concessionaire is primarily due to lower amortization charges following the extended opening date for the new airport, which at June 30 was approximately 79% complete. The higher operating profits from Israel reflect the two new operations and maintenance contracts and higher volumes on the main highway.

Consolidated Results The Consolidated Results for the three and six months ended June 30, 2011 and 2010 are available at the end of this News Release.

Balance Sheet Highlights

Financial Highlights
(thousands of dollars) (unaudited)   June 30, 2011   Dec. 31, 2010
         
Cash and cash equivalents and restricted cash $ 126,644 $ 308,653
Other current assets   863,646   1,010,417
Property, plant and equipment   469,422   444,276
Other long-term assets   403,762   358,059
Total Assets $ 1,863,474 $ 2,121,405
         
Current liabilities $ 791,816 $ 1,075,038
Non-recourse project debt   103,868   27,333
Other long-term debt   115,552   129,435
Convertible debentures   249,849   249,751
Other long-term liabilities   179,943   180,250
         
Equity   422,446   459,598
Total Liabilities and Equity $ 1,863,474 $ 2,121,405

Conference Call

A conference call has been scheduled for Wednesday, August 3, 2011 at 10:30 a.m. ET to discuss Aecon’s 2011 second quarter financial results.  Participants should dial 416-981-9039 or 1-800-741-8620 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 August 10, 2011.  The pass code is 21533819.

The information in this press release includes certain forward-looking statements. These “forward-looking” statements are based on currently available competitive, financial and economic data and operating plans but are subject to risks and uncertainties.  In addition to general global events outside Aecon’s control, there are factors which could cause actual results, performance or achievements to vary from those expressed or inferred herein including risks associated with an investment in the common shares of Aecon and the risks related to Aecon's business, including Large Project Risk and Contractual Factors. Risk factors are discussed in greater detail in the section on “Risk Factors” in the Annual Information Form filed on March 30, 2011 and available at www.sedar.com.  Forward-looking statements include information concerning possible or assumed future results of operations or financial position of Aecon, as well as statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “should” or similar expressions.  Important factors, in addition to those discussed in this document, could affect the future results of Aecon and could cause those results to differ materially from those expressed in any forward-looking statements.

Caution Regarding Non-GAAP Earnings Measures

This press release is based on reported earnings in accordance with International Financial Reporting Standards (“IFRS”).  It is also based on EBITDA, Operating Profit, Adjusted Profit (Loss) Attributable to Shareholders and Adjusted Earnings (Loss) Per Share.  These non-GAAP measures are derived from the Consolidated Financial Statements but do not have a standardized meaning prescribed by IFRS.  Management believes that a significant number of the users of its Management’s Discussion and Analysis (“MD&A”) analyze the Corporation’s results based on these performance measures and that this presentation is consistent with industry practice.  Backlog is not a recognized performance measure under GAAP and does not have any standardized meaning prescribed by GAAP.  Aecon believes that backlog is a useful complementary measure, commonly used by management and the investment community, to evaluate the Company’s projected activity in future periods.  There is no direct comparable measure to backlog in GAAP.  Additional information on Non-GAAP Measures is included in the Company’s MD&A.

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(in thousands of Canadian dollars, except per share amounts) (unaudited)

 

Financial Highlights
    For the three months ended For the six months ended
    June 30   June 30 June 30   June 30
    2011   2010 2011   2010
                       
Revenue $ 758,441   $ 679,698 $ 1,270,456   $ 1,106,012
Direct costs and expenses   (709,595)     (628,144)   (1,205,362)     (1,034,031)
Gross profit   48,846     51,554   65,094     71,981
                       
Marketing, general and administrative expenses   (28,167)     (29,986)   (60,228)     (57,040)
Depreciation and amortization   (15,063)     (11,404)   (29,732)     (21,469)
Income (loss) from construction projects accounted for using the equity method   7,147     411   7,910     (1,712)
Other income (loss)   1,116     26   2,159     6,303
Operating profit (loss)   13,879     10,601   (14,797)     (1,937)
                       
Finance income   1,848     2,895   4,306     5,259
Finance costs   (8,787)     (5,857)   (17,601)     (11,637)
Fair value gain (loss) on convertible debentures   (4,761)     2,016   2,879     10,266
Profit (loss) before income taxes   2,179     9,655   (25,213)     1,951
Income tax (expense) recovery   98     (1,734)   7,249     1,800
Profit (loss) for the period $ 2,277   $ 7,921 $ (17,964)   $ 3,751
Attributable to:                    
  Shareholders $ 678   $ 7,156& $ (20,805)   $ 1,844 
  Non-controlling interests   1,599      765    2,841      1,907 
    $ 2,277    $ 7,921  $ (17,964)   $ 3,751 
                       
                       
Basic earnings (loss) per share $ 0.01    $ 0.13  $ (0.38)   $ 0.03 
Diluted earnings (loss) per share $ 0.01    $ 0.12  $ (0.38)   $ 0.00


  • In May, Aecon announced that a joint venture in which Aecon is a 40% partner was awarded a $150 million contract for the Port Mann main water supply tunnel in Vancouver.
  • Also in May, Aecon announced that it had been awarded contracts totalling $26 million for construction services at two natural gas compressor stations in Ontario owned by Union Gas.
  •  In July, Aecon announced that it had been awarded contracts totalling $64 million for construction services on Highway 400, north of Barrie, Ontario, and Highway 407 ETR, north of Toronto.
  • Throughout the quarter, Aecon continued to purchase shares under a normal course issuer bid, launched in March of this year that enables it to purchase up to 5,527,277 common shares of Aecon over a 12-month period. At June 30, 2011, Aecon had acquired an aggregate of 891,100 common shares, all of which were subsequently cancelled.
   


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.

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.

Financial Highlights  (1)(2)
 ($ millions)
Three Months
Ended June 30
  Six Months
Ended June 30
 
    2011   2010         2011   2010    
Revenues $ 398 $ 363       $ 657 $ 600    
EBITDA   9.9   (5.4)         (12.1)   (18.7)    
Segment operating profit (loss)   1.4   (11.3)         (29.8)   (29.5)    
Operating profit margin   0.3%   (3.1)%         (4.5)%   (4.9)%    
Backlog – June 30 $ 1,757 $ 1,850                  


(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.

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.