Aecon Group Inc.
TSX : ARE

Aecon Group Inc.

March 03, 2009 18:33 ET

Aecon Reports Record Results for 2008

- Margins strengthen on record revenue of $1.88 billion - Operating profit reaches record $97.2 million - Net income improves to record $59.3 million or $1.20 per diluted share - Backlog of $1.25 billion is the largest year end backlog in Aecon's history - Outlook for 2009 and 2010 remains positive in most markets despite economic turmoil - Proposed acquisition of Lockerbie & Hole will strengthen Aecon's position in the western Canadian market

TORONTO, ONTARIO--(Marketwire - March 3, 2009) - Aecon Group Inc. (TSX:ARE) today reported record operating results for 2008 as margins, operating profit and net income all increased over those reported the previous year.



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

Three Months Twelve Months
Ended December 31 Ended December 31
$ millions, except ------------------------------------------
per share amounts 2008 2007 2008 2007
--------- --------- --------- ---------

Revenues $ 603 $ 482 $ 1,877 $ 1,493
Gross margin 72.1 48.5 211.1 142.4
EBITDA 42.9 30.8 124.7 82.7
Operating profit 34.8 26.2 97.2 60.8
Interest expense (3.3) (2.8) (9.3) (11.2)
Earnings Before Taxes 31.4 23.4 87.9 49.6
Income taxes (10.4) (0.4) (26.8) (0.4)
Net income for the period 20.4 22.5 59.3 48.3
Earnings per diluted share 0.40 0.50 1.20 1.16
--------------------- --------------------
--------------------
Backlog - December 31 $ 1,254 $ 1,234
---------------------
---------------------


Revenues in 2008 totalled $1.88 billion, a 26% increase from 2007, as increases were recorded in all four operating segments.

Gross margins (revenues less direct costs and expenses) increased by 48% to $211.1 million, bringing gross margins as a percentage of revenues to 11.2% from 9.5% in 2007.

EBITDA (representing income from operations before interest expense, income taxes, depreciation, amortization and non-controlling interests) grew to $124.7 million in 2008, an increase of 51% over the $82.7 million recorded in 2007.

Operating profit (representing income from operations before interest expense, income taxes and non-controlling interests) increased by 60% to $97.2 million, as the Industrial, Infrastructure and Concessions segments each reported improvement, partially offset by a decline in the Buildings segment.

Earnings before taxes (income before income taxes and non-controlling interests) increased by 77% to $87.9 million from $49.6 million in 2007.

Net income in 2008 grew to $59.3 million ($1.20 per diluted share) from $48.3 million in 2007 ($1.16 per diluted share). Net income in the fourth quarter was $20.4 million ($0.40 per diluted share) compared with $22.5 million ($0.50 per diluted share) in the fourth quarter of 2007. In 2007, taxes that would normally have been recorded on income from Canadian controlled entities were offset by the reversal of tax valuation allowances recorded in prior periods.

Marketing, general and administrative expenses amounted to $96.0 million in 2008, which is $24.1 million higher than 2007 due primarily to higher volumes, the acquisition of Leo Alarie & Sons in late 2007, expanded product offerings at Innovative Steam Technologies ("IST") and restructuring costs in the Montreal operations of the Buildings segment.

Depreciation and amortization expense of $27.5 million is $5.6 million higher than last year due primarily to depreciation charges on equipment acquired as part of the Alarie acquisition. Foreign exchange gains of $1.5 million were reported in 2008, compared with foreign exchange losses of $1.6 million in 2007.

Outlook

"Canada's economic outlook in the first quarter of 2009 is one of concern. Yet Aecon's outlook is also impacted by a number of important positive factors including our highest-ever year end backlog, a strong balance sheet and a bidding pipeline that remains robust in three of our four operating segments," said John M. Beck, Chairman and CEO, Aecon Group Inc. "In addition, the recently proposed acquisition of Lockerbie & Hole will strengthen Aecon's position in the western Canadian market."

"Overall, notwithstanding the current economic environment, I believe that our record year end backlog and the relative durability of our Infrastructure and Buildings markets bode well for continued strong financial performance throughout 2009 and into 2010," said Scott Balfour, President and CFO, Aecon Group Inc.

Backlog and New Business Awards

Backlog at December 31, 2008 was $1.254 billion, a $20 million increase over the same time in 2007. The Infrastructure and Buildings segments saw significant backlog growth in 2008, while Industrial backlog fell 35% on a year-over-year basis. 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 $1.897 billion were booked in 2008, which compared with $1.941 billion in 2007.

Fourth Quarter Business Highlights

- In October 2008, Aecon announced a four-year alliance contract with Enbridge Gas totalling approximately $180 million. Consistent with Aecon's backlog policy and as with similar contracts with Union Gas and Bell Canada, among others, this contract is not included in Aecon's reported backlog.

- In December 2008, Aecon announced that it had signed a share purchase agreement for all the outstanding shares of South Rock Ltd., an Alberta civil contractor.

- In December 2008, the Globe & Mail and Hewitt Associates recognised Aecon as one of the Best 10 employers in Canada.

- Average weekday traffic on the Cross Israel Highway in December 2008 surpassed 97,000, a 4% increase over December 2007.

- Nearly 4.5 million passengers passed through the existing Quito, Ecuador airport in 2008, a 6.9% increase from 2007.

- Construction of the new airport in Quito continued to progress well, remaining on track for completion in the fall of 2010.

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) Three Months Twelve Months
($ millions) Ended December 31 Ended December 31
--------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------

Revenues $ 258 $ 207 $ 739 $ 689

Segment operating profit 9.1 4.8 23.7 23.5
--------------------- --------------------
Return on revenue 3.5% 2.3% 3.2% 3.4%
--------------------
--------------------
Backlog - December 31 $ 470 $ 372
---------------------
---------------------
(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 by 7% in 2008 to $739 million, largely due to growth in Western Canada where Alberta roadbuilding and heavy civil operations grew by $36 million, and $23 million, respectively.

Operating profit from the Infrastructure segment grew to $23.7 million in 2007, a 1% increase over 2007. Increases in Western Canada, driven by the volume growth there, and in international operations, where profit recognition began in 2008 on the Quito International Airport project, offset declines in heavy civil operations and roadbuilding in Ontario. Year-over-year comparisons are also negatively impacted by a $3.4 million gain reported in 2007 on the sale of Aecon's right to participate in the construction of an extension to the Cross Israel Highway.

Backlog at December 31, 2008 was $470 million, a $98 million increase over 2007 due largely to higher backlog in roadbuilding operations, mostly in the segment's Alberta and Alarie operations. New contract awards were $838 million, a 31% increase from the $640 million recorded in 2007.

Buildings

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



Financial Highlights Three Months Twelve Months
($ millions) Ended December 31 Ended December 31
--------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Revenues $ 135 $ 131 $ 461 $ 386
Segment operating profit (loss) (1.0) 3.2 0.4 4.4
---------------------- -------------------
Return on revenue (0.8)% 2.5% 0.1 1.1%
-------------------
-------------------
Backlog - December 31 $ 534 $ 480
----------------------
----------------------


Revenues from the Buildings segment grew by 19% to $461 million in 2008, as all operating units except Ottawa reported year-over-year increases. The largest increases occurred in Toronto and Seattle.

Segment operating profit of $0.4 million in 2008 represents a decline of $4.0 million from 2007. Most of the decrease can be attributed to a $9.8 million decline in Montreal, which was partly offset by an increase in Toronto. The decline in Montreal was primarily due to profit writedowns on some projects, and increased relocation and restructuring costs. Management has analyzed the circumstances that caused this unacceptable performance in Montreal and a substantive restructuring is now underway to improve future performance.

Backlog of $534 million at the end of 2008 was $54 million higher than at the same time in 2007 with the largest increase in backlog occurring in the segment's Toronto operations, which ended the year with a record backlog level of $347 million. New contract awards totaling $516 million were recorded in 2008, which compares with awards of $675 million in 2007.

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 Three Months Twelve Months
($ millions) Ended December 31 Ended December 31
--------------------- --------------------
2008 2007 2008 2007
---------- --------- --------- ---------

Revenues $ 187 $ 146 $ 612 $ 398

Segment operating profit 29.2 18.5 75.0 36.2
--------------------- --------------------
Return on revenue 15.6% 12.7% 12.3% 9.1%
--------------------
--------------------
Backlog - December 31 $ 250 $ 384
---------------------
---------------------


Revenues of $612 million from the Industrial segment represent a 54% increase over the revenues generated in 2007. While all operating units reported higher revenues, the segment's construction operations in Ontario and its Western Canada operations reported the largest increases.

The Industrial segment generated an operating profit of $75.0 million in 2008, more than double the $36.2 million reported in 2007, largely due to increases in Ontario construction operations and in Western Canada operations. The higher operating profits were mostly a function of higher volumes and generally improved margins in 2008. The results for 2008 also benefited from the commencement of profit recognition on the East Windsor Cogeneration project which reached 20% completion during 2008.

Backlog at December 31, 2008 of $250 million was 35% lower than at the same time last year, with the largest decreases occurring in the Ontario Construction and Western Canada operations. Also of note, IST's backlog of $52 million at the end of 2008 was one of the highest year end balances in its history. Overall, new contract awards of $479 million in 2008 were $118 million lower than in 2007. Most of the decrease in new awards was in Western Canada and Ontario construction operations where a large award for a cogeneration project received in late 2007 was not repeated in 2008.

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 Three Months Twelve Months
($ millions) Ended December 31 Ended December 31
--------------------- --------------------
2008 2007 2008 2007
---------- --------- --------- ---------
Revenues $ 25 $ 15 $ 72 $ 58

Segment operating profit 3.5 0.2 10.6 4.0
--------------------- --------------------
Return on revenue 13.7% 1.3% 14.7 6.9%
--------------------- --------------------
--------------------- --------------------


Revenues in 2008 of $72 million in the Concessions segment were up 25% over 2007. The majority of the increase came from Aecon's proportionate share of the revenues from operating the Cross Israel Highway, which is being carried out on a fee for service basis by a company in which Aecon holds a 30.6% interest.

Segment operating profit more than doubled in 2008 to $10.6 million due to improvements in operating profits from the Quito airport concessionaire, which includes the results from operating the existing Quito airport while the new airport is being constructed, and higher results from Aecon's interest in the company that operates the Cross Israel Highway. Operating profit from the operations of the existing Quito airport is required to be 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 over time, 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 14% after-tax IRR (internal rate of return) 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

Corporate segment operating loss in 2008 was higher than in 2007 by $5.3 million, due largely to a $4.3 million gain in 2007 which Aecon received from Hochtief AG (Aecon's former largest shareholder) in connection with the sale of its interest in Aecon in 2006, as well as marketing, general and administrative expenses ("MG&A") which were higher than 2007 by $4.2 million. The largest increase in MG&A resulted from higher share-based compensation expense related to the granting of stock option awards in the third quarter of 2008.

Consolidated Results

The Consolidated Results for 2008 and 2007 are available at the end of this News Release.



Balance Sheet Highlights

----------------------------------------------------------------------------
(thousands of dollars) Dec. 31, 2008 Dec. 31, 2007
------------- -------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Cash, cash equivalents and restricted cash $ 321,067 $ 169,234
----------------------------------------------------------------------------
Other current assets 502,925 434,015
----------------------------------------------------------------------------
Property, plant and equipment 102,333 97,105
----------------------------------------------------------------------------
Other long-term assets 262,539 210,298
----------------------------------------------------------------------------
Total Assets 1,188,864 910,652
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Current liabilities $ 543,839 $ 439,984
----------------------------------------------------------------------------
Long-term debt 163,825 132,710
----------------------------------------------------------------------------
Other long-term liabilities 98,935 112,549
----------------------------------------------------------------------------
Shareholders' equity 382,265 225,409
----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity 1,888,864 910,652
----------------------------------------------------------------------------


Conference Call

A conference call has been scheduled for Wednesday, March 4, 2009 at 10:00 a.m. ET to discuss Aecon's 2008 financial results. Participants should dial 416-620-2419 or 1-800-215-0816 at least 10 minutes prior to the conference time of 10:00 a.m. A replay will be available after 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, March 11, 2009. The pass code is 21416283.

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 10 Best Employers in Canada as published by Report on Business Magazine, as well as one of the Top 100 Employers in Canada as published in Maclean's 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 uncertainty caused by recent events in the global financial and credit markets, 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, 2008 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, 2008 and 2007

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

2008 2007
------------- -------------

Revenues $ 602,710 $ 482,320

Direct costs and expenses (530,578) (433,812)
------------- -------------

72,132 48,508

Marketing, general and
administrative expenses (33,507) (24,580)

Foreign exchange gains (losses) 1,639 (69)

Gain on sale of assets 76 4,260

Depreciation and amortization (8,173) (4,575)

Interest expense (3,326) (2,844)

Interest income 2,593 2,660
------------- -------------

(40,698) (25,148)
------------- -------------

Income before income taxes and
non-controlling interests 31,434 23,360
------------- -------------

Income tax (expense) recovery
Current (1,568) 1,115
Future (8,862) (1,539)
------------- -------------
(10,430) (424)
------------- -------------

Income before non-controlling interests 21,004 22,936

Non-controlling interests (613) (425)
------------- -------------

Net income for the period $ 20,391 $ 22,511
------------- -------------
------------- -------------

Net earnings per share
Basic $ 0.41 $ 0.56
Diluted $ 0.40 $ 0.50

Average number of shares outstanding
Basic 50,207,924 39,952,263
Diluted 50,822,206 47,330,590



Consolidated Statements of Income for the years ended
December 31, 2008 and 2007
(in thousands of dollars, except per share amounts)

2008 2007
------------------------------

Revenue $ 1,876,986 $ 1,492,747

Direct costs and expenses (1,665,924) (1,350,311)
------------------------------
211,062 142,436

Marketing, general and
administrative expenses (96,010) (71,896)

Foreign exchange gains (losses) 1,481 (1,646)

Gain on sale of assets 104 7,840

Depreciation and amortization (27,493) (21,915)

Interest expense (9,275) (11,234)

Interest income 8,080 5,972
------------------------------

(123,113) (92,879)
------------------------------
Income before income taxes and non-
controlling interests 87,949 49,557
------------------------------

Income tax (expense) recovery
Current (3,696) 223
Future (23,123) (653)
------------------------------

(26,819) (430)
------------------------------

Income before non-controlling interests 61,130 49,127

Non-controlling interests (1,788) (824)
------------------------------

Net income for the year $ 59,342 $ 48,303
------------------------------
------------------------------

Net earnings per share
Basic $ 1.23 $ 1.28
Diluted $ 1.20 $ 1.16

Average number of shares outstanding
Basic 48,065,421 37,673,208
Diluted 49,805,700 46,922,459



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