Aecon Group Inc.
TSX : ARE

Aecon Group Inc.

March 04, 2008 17:50 ET

Aecon Reports Record Results for 2007




TORONTO, ONTARIO--(Marketwire - March 4, 2008) -

Attention Business/Financial Editors:

Aecon Group Inc. (TSX: ARE) today reported record
operating results for 2007 as margins, operating profit and net income all
increased over those reported the previous year.

Revenue, Operating Results and Net Income
-----------------------------------------

Three Months Ended Twelve Months Ended
December 31 December 31
----------------------------------------------
$ millions 2007 2006 2007 2006
---- ---- ---- ----

Revenues $ 482 $ 338 $ 1,493 $ 1,113
Gross margin 48.5 39.7 142.4 96.6
EBITDA 30.8 19.1 82.7 36.5
Operating profit 26.2 13.5 60.8 21.9
Interest expense (2.8) (2.3) (11.2) (9.7)
Income taxes (0.4) (0.6) (0.4) (0.7)
Non-controlling interests (0.4) - (0.8) -
Net income (loss) for
the period 22.5 10.6 48.3 11.5
----------------------- -----------------------
-----------------------
Backlog - December 31 $ 1,234 $ 786
-----------------------
-----------------------

Revenues in 2007 totalled $1.49 billion, a 34% increase from the
$1.11 billion reported last year, as increases were recorded in all four
operating segments.
Gross margins (revenues less direct costs and expenses) increased by 47%
to $142.4 million, bringing gross margins as a percentage of revenues to 9.6%
from 8.7% in 2006.
EBITDA (representing income from operations before interest expense,
income taxes, depreciation, amortization and non-controlling interests) grew
to $82.7 million in 2007, an increase of 126% over the $36.5 million recorded
in 2006.
Operating profit (representing income from operations before interest
expense, income taxes and non-controlling interests) increased to
$60.8 million from $21.9 million in 2006, an increase of 178%, as the
Industrial, Infrastructure and Concessions segments each reported significant
improvement. As expected, the Buildings segment reported a small decline of
$0.2 million.
Net income in 2007 grew to $48.3 million ($1.16 per diluted share) from
$11.5 million in 2006 ($0.31 per diluted share). Net income of $22.5 million
in the fourth quarter ($0.50 per diluted share) was more than double the
$10.6 million reported in the fourth quarter of 2006 ($0.28 per diluted
share), making this the most profitable quarter in Aecon's history.
Marketing, general and administrative expenses amounted to $71.9 million
in 2007, which is $9.4 million higher than the previous year due primarily to
higher volumes, the expansion of operations in western Canada, higher
information technology costs and increased performance-related incentives.
Depreciation and amortization expense of $21.9 million is $7.3 million
higher than last year due primarily to amortization of concession rights
related to the existing Quito airport, which commenced in mid 2006. Foreign
exchange losses of $1.6 million contrasted with gains of $0.3 million in 2006.

Outlook
-------

"Aecon's strong results are evidence that our strategic plan continues to
have us on the right path," said John M. Beck, Chairman and CEO, Aecon Group
Inc. "The ongoing strength of our core markets, especially in the energy and
transportation infrastructure sectors in Canada, bode well for continued
strong financial performance in 2008 and 2009."
"The strength of our backlog and the growth we experienced in 2007 are
strong positive signals for Aecon," said Scott Balfour, President and CFO,
Aecon Group Inc. "In 2008, I expect to see a continuation of the key market
forces that have driven our strong bottom line results over the past year."

Backlog and New Business Awards
-------------------------------

Backlog at December 31, 2007, was $1,234 million, a 57% increase from the
same time last year, due to backlog growth in the Buildings and Industrial
segments, offset somewhat by a small decline in the Infrastructure segment
(due largely to work-off on the Quito International Airport project). 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.
New contract awards of $1.94 billion were booked in 2007, a 47% increase
from the $1.32 billion awarded in 2006.


Fourth Quarter Business Highlights
----------------------------------

- Net income of $22.5 million in the fourth quarter of 2007 made this
the most profitable quarter in Aecon's history.

- In December 2007, Aecon acquired the assets of Leo Alarie and Sons,
one of the largest construction companies in northern Ontario.

- In December 2007, Aecon was added to S&P/TSX Composite Index.

- Average weekday traffic on the Cross Israel Highway in December 2007
surpassed 93,000, a 15 % increase over December 2006.

- Construction of the new airport in Quito, Ecuador, is progressing
well, reaching 22% completion at the end of 2007.

- Over 4.2 million passengers passed through the existing Quito
International Airport in 2007, including more than 1 million in the
fourth quarter, a 4.1% increase from the same quarter last year.


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)
($ millions) Three Months Twelve Months
Ended December 31 Ended December 31
------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----

Revenues $ 207 $ 146 $ 689 $ 484
Segment operating profit 4.8 7.2 23.5 16.5
------------------- -------------------
Return on revenue 2.3% 4.9% 3.4% 3.4%
-------------------
-------------------
Backlog - December 31 $ 372 $ 410
-------------------
-------------------
(1) Segment operating profit or loss represents the profit or loss from
operations, before interest expense, income taxes, non-controlling
interests, and corporate allocations of overhead costs and capital
charges.
(2) Segment return on revenue is calculated as segment operating profit
(loss) as a percentage of revenues.


Revenues from the Infrastructure segment increased 42% to $689 million in
2007, largely due to revenue increases from roadbuilding (much of which were
from The Karson Group, acquired by Aecon in February 2007), as well as gains
from heavy civil operations and utilities operations.
Operating profit from the Infrastructure segment grew to $23.5 million in
2007, a 42% improvement over 2006. Much of the improvement came from
roadbuilding and heavy civil operations, both of which saw volume and margin
growth in 2007, and from a $3.4 million gain on the sale of Aecon's right to
participate in the construction of an extension of the Cross Israel Highway.
Partially offsetting these increases were risk reserves taken on a few
previously completed large projects.
It should be noted that construction profits have not yet been recorded
on the new Quito airport project. Under Aecon's accounting policy for large
multi-year contracts, profit is recognized only when construction reaches a
stage of completion that is sufficient to reasonably determine a project's
probable results. This milestone is expected to be reached in the first half
of 2008.
Backlog of $372 million at December 31, 2007 represents a decline of 9%
from the same time last year, due largely to work performed on the Quito
airport project and the impact of foreign exchange conversion.

- 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 Twelve Months
Ended December 31 Ended December 31
------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----

Revenues $ 131 $ 84 $ 386 $ 323
Segment operating profit 3.2 2.6 4.4 4.6
------------------- -------------------
Return on revenue 2.5% 3.1% 1.1% 1.4%
-------------------
-------------------
Backlog - December 31 $ 480 $ 191
-------------------
-------------------


Revenues in the Buildings segment totalled $386 million in 2007, a 20%
increase over 2006 due primarily to increases from operations in Ottawa and
Montreal. Partly offsetting these increases was a decline from Toronto
operations in the first half of the year.
Segment operating profit of $4.4 million in 2007 was 5% lower than in
2006, as the impact of restructuring costs contributed to disappointing
results from Toronto operations, offsetting year-over-year growth in operating
profit from all other business units.
Backlog of $480 million in the Buildings segment at the end of 2007 was
more than double the $191 million in place at the end of 2006, due in large
part to the award of three large projects in the second half of the year
within the Toronto business unit and strong new business awards in the Seattle
business unit.

- 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 Twelve Months
Ended December 31 Ended December 31
------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----

Revenues $ 146 $ 105 $ 398 $ 290
Segment operating profit 18.5 12.6 36.2 19.5
------------------- -------------------
Return on revenue 12.7% 12.0% 9.1% 6.7%
-------------------
-------------------
Backlog - December 31 $ 384 $ 186
-------------------
-------------------


Revenues of $398 million in the Industrial segment were 37% higher than
2006. While all operating units within this segment reported year-over-year
revenue increases, the segment's construction operations in Ontario and its
Innovative Steam Technologies (IST) business were responsible for most of the
increase.
Segment operating profit grew by 86% in 2007, reaching $36.2 million, led
by improvements at IST, Western Canada operations and construction operations
in Ontario. Higher volumes and generally improved margins contributed to most
of the operating profit increases.
Backlog at December 31, 2007 of $384 million was more than double the
$186 million in place a year earlier. The increase was due primarily to strong
backlog growth in both Western and Central Canada, where the addition of a
$105 million contract for a new power plant in Windsor contributed
significantly to backlog, and at IST, which ended the year with the second
highest backlog in its history.

- 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 Twelve Months
Ended December 31 Ended December 31
------------------- -------------------
2007 2006 2007 2006
---- ---- ---- ----

Revenues $ 15 $ 13 $ 58 $ 36
Segment operating profit (loss) 0.2 (0.4) 4.0 (2.7)
------------------- -------------------
Return on revenue $ 1.3% $ (3.1%) 6.9% (7.6)%
------------------- -------------------
------------------- -------------------


Revenues in the Concessions segment were $58 million in 2007, up 61% from
last year, reflecting the reporting of revenues from the Quito Airport project
for the full year in 2007 compared to a half year in 2006.
Operating profit of $4.0 million in 2007 was an improvement of
$6.7 million over the $2.7 million loss recorded last year. The main
contributors to the increase were the operations of the existing airport in
Quito, Ecuador and improved results from the operator of the Cross Israel
Highway. All operating profits from the existing Quito airport are being
invested to finance the development and construction costs of the new airport.
While Aecon's investment in the Cross Israel Highway concession continues
to grow in value, this increasing value will not be reflected in earnings
until a dividend is received or a portion of the investment is sold. As such,
even though the Cross Israel Highway is performing well and is generating
strong operating cash flow, Aecon has not reported any revenues or profits
from this investment. The project remains on track to deliver an expected 15%
after-tax internal rate of return ("IRR") on Aecon's investment.
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.

- Corporate and Other

Net corporate expenses in 2007 totalled $13.2 million compared to
$18.2 million in 2006. Included in the 2007 results was $4.3 million which
Aecon received in return for agreeing to amendments to a co-operation
agreement negotiated with Hochtief AG, including a release from non-compete
provisions which were set to expire in 2008. Pension expense was also lower in
2007 due to a $1.5 million non-recurring cost in 2006 associated with the
termination of one of Aecon's defined benefit pension plans.
Without the impacts of these one time items, net corporate expenses
increased in 2007 by $0.7 million, due primarily to higher salary and
performance-related incentive costs.

Consolidated Results

The Consolidated Results for 2007 and 2006 are available at the end of
this News Release.


Balance Sheet Highlights

-------------------------------------------------------------------------
Dec. 31, Dec. 31,
(thousands of dollars) 2007 2006
----------- -----------

-------------------------------------------------------------------------
Cash, cash equivalents, restricted cash and
restricted term deposits and marketable
securities $ 169,234 $ 78,528
-------------------------------------------------------------------------
Other current assets 434,015 372,839
-------------------------------------------------------------------------
Property, plant and equipment 97,105 53,348
-------------------------------------------------------------------------
Other long-term assets 210,298 211,572
-------------------------------------------------------------------------
Total Assets 910,652 716,287
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Current liabilities $ 439,984 $ 330,167
-------------------------------------------------------------------------
Long-term debt 132,710 81,120
-------------------------------------------------------------------------
Other long-term liabilities 112,549 151,397
-------------------------------------------------------------------------
Shareholders' equity 225,409 153,603
-------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity 910,652 716,287
-------------------------------------------------------------------------



Conference Call

A conference call has been scheduled for Wednesday, March 5, 2008 at
10:30 a.m. ET to discuss Aecon's 2007 financial results. Participants should
dial 416-641-6682 or 1-800-354-6885 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 12, 2008. The pass code is 21375083.

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

The information in this news release includes certain forward-looking
statements. Forward-looking statements are based on estimates and assumptions
derived from past experience and interpretation of historical trends, current
conditions and expected future developments. Many factors could cause Aecon's
actual results, performance or achievements to vary from those expressed or
inferred by these statements, including without limitation, the future of the
Eastmain Joint Venture to recover the value of unpriced change orders, risks
associated with the Quito Airport Project and the various general and specific
risks associated with operating in the construction and infrastructure
development industry. Risk factors are discussed in greater detail in the
Section entitled "Risk Factors and Uncertainties" in Management's Discussion
and Analysis of operating results and Financial condition for the year ended
December 31, 2007 to be filed on SEDAR at www.sedar.com. Although Aecon
believes that the expectations reflected in forward-looking statements are
reasonable, it can give no assurance that the expectations of any
forward-looking statements will prove to be correct.



Consolidated Statements of Income for the three months ended
December 31, 2007 and 2006
(in thousands of dollars, except per share amounts) (unaudited)

2007 2006
----------- ------------
Revenues $ 482,320 $ 337,953

Direct costs and expenses (433,812) (298,274)
------------------------

48,508 39,679

Marketing, general and administrative expenses (24,580) (22,410)

Foreign exchange (losses) gains (69) 1,286

Gain (loss) on sale of assets 4,260 (199)

Depreciation and amortization (4,575) (5,564)

Interest expense (2,844) (2,341)

Interest income 2,660 711
------------------------

(25,148) (28,517)
------------------------

Income before income taxes and
non-controlling interests 23,360 11,162

Income tax (expense) recovery
Current 1,115 (2,080)
Future (1,539) 1,527
------------------------

(424) (553)
------------------------

Income before non-controlling interests 22,936 10,609

Non-controlling interests (425) -
------------------------

Net income for the period $ 22,511 $ 10,609
------------------------
------------------------

Net earnings per share
Basic $ 0.56 $ 0.29
Diluted $ 0.50 $ 0.28

Average number of shares outstanding
Basic 39,952,263 36,484,866
Diluted 47,330,590 38,046,615



Consolidated Statements of Income for the years ended
December 31, 2007 and 2006
(in thousands of dollars, except per share amounts) (unaudited)

2007 2006
------------ -----------

Revenues $1,492,747 $1,113,306

Direct costs and expenses (1,350,311) (1,016,744)
------------------------

142,436 96,562

Marketing, general and administrative expenses (71,896) (62,458)

Foreign exchange (losses) gains (1,646) 324

Gain (loss) on sale of assets 7,840 (68)

Depreciation and amortization (21,915) (14,613)

Interest expense (11,234) (9,660)

Interest income 5,972 2,144
------------------------

(92,879) (84,331)
------------------------

Income before income taxes and
non-controlling interests 49,557 12,231
------------------------

Income tax (expense) recovery
Current 223 (2,790)
Future (653) 2,061
------------------------

(430) (729)
------------------------

Income before non-controlling interests 49,127 11,502

Non-controlling interests (824) -
------------------------

Net income for the year $ 48,303 $ 11,502
------------------------
------------------------

Net earnings per share
Basic $ 1.28 $ 0.33
Diluted $ 1.16 $ 0.31

Average number of shares outstanding
Basic 37,673,208 35,157,471
Diluted 46,922,459 37,116,872


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