Aecon Group Inc.
TSX : ARE

Aecon Group Inc.

August 04, 2009 17:30 ET

Aecon Reports Second Quarter Results

- Revenues increase to $613 million, driven largely by Lockerbie and South Rock acquisitions - EBITDA up slightly to $33.2 million - Net income dips to $9.9 million or $0.18 per share - Backlog reaches $1.66 billion - Outlook remains positive overall, with Industrial markets still soft

TORONTO, ONTARIO--(Marketwire - Aug. 4, 2009) - Aecon Group Inc. (TSX:ARE) today reported its financial results for the second quarter of 2009.

Revenue, Operating Results and Net Income



Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------
$ millions, except per share amounts 2009 2008 2009 2008
---- ---- ---- ----

Revenues $ 613 $ 438 $ 954 $ 740
Gross margin 63.4 51.7 96.0 70.3
EBITDA 33.2 32.9 43.0 37.4
Operating profit 18.2 26.5 20.0 25.2
Interest expense (3.0) (2.3) (4.7) (4.4)
Earnings before taxes 15.2 24.3 15.3 20.8
Income taxes (4.6) (8.2) (4.3) (4.2)
Net income 9.9 15.6 9.3 15.9
---------------- ----------------
Earnings per share $ 0.18 $ 0.31 $ 0.17 $ 0.34
---------------- ----------------
----------------
Backlog - June 30 $ 1,660 $ 1,479
----------------
----------------


Second quarter revenues reached a record $613 million, with increases reported in each of the four operating segments. Most of the increase was due to the recent acquisitions of Lockerbie & Hole and South Rock.

Gross margin (representing revenues less direct costs and expenses) increased from $51.7 million (or 11.8% of revenues) in the second quarter of 2008 to $63.4 million (or 10.3% of revenues) in the second quarter of 2009.

EBITDA (representing income from operations before interest expense, income taxes, depreciation, amortization and non-controlling interests) grew to $33.2 million in the quarter from $32.9 million in the second quarter of 2008.

Depreciation and amortization expense of $15 million in the quarter was $8.6 million higher than in the same quarter last year. The increases occurred mainly in the Infrastructure and Industrial segments and resulted primarily from higher depreciation and temporary amortization charges on property, plant and equipment and intangible assets resulting from the South Rock and Lockerbie acquisitions.

Operating profit (representing income from operations before interest expense, income taxes and non-controlling interests) decreased to $18.2 million from $26.5 million in the same quarter last year, as decreases in the Infrastructure and Industrial segments offset increases in the Buildings and Concessions segments.

Earnings before taxes (representing income from operations before income taxes and non-controlling interests) in the quarter were $15.2 million, compared to $24.3 million in the same quarter of 2008.

Net income decreased to $9.9 million ($0.18 per diluted share) in the quarter from $15.6 million ($0.31 per diluted share) in the same period last year. Net income of $9.3 million ($0.17 per diluted share) in the first half of 2009 was down from $15.9 million ($0.34 per diluted share) reported in the same period last year.

Outlook

"Aecon's outlook remains positive," said John M. Beck, Chairman and CEO, Aecon Group Inc. "Notwithstanding the current economic and financial environment, I continue to believe that Aecon's strong backlog and the relative durability of our Infrastructure and Buildings markets bode well for continued strong financial performance throughout 2009 and into 2010."

"The positive indicators Aecon identified at the beginning of the year, including a healthy backlog, a strong balance sheet and a robust bidding pipeline, continue to provide reason for optimism," said Scott Balfour, President and CFO, Aecon Group Inc. "We currently have the strongest civil infrastructure bidding pipeline in many years and, while market conditions in the oilsands have dampened our expectations somewhat regarding the current year contribution from Lockerbie, we feel very good about the medium term outlook for the Industrial segment generally and Lockerbie in particular."

Backlog and New Business Awards

Backlog at June 30, 2009 reached a record $1.66 billion with the addition of Lockerbie and South Rock backlog, as growth in the Buildings and Industrial segments offset a small decline in Infrastructure backlog. Backlog acquired as part of the Lockerbie and South Rock transactions accounts for $586 million of the backlog at June 30. This total represents the acquired work-in-hand that meets Aecon's definition of backlog.

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 $478 million were booked in the quarter, compared to $686 million in the second quarter of 2008. A substantial portion of Aecon's bidding pipeline includes large projects such as major highway extensions, hydroelectric plants, hospitals and public transit projects. As such, it is expected that Aecon's new business and backlog profile could be somewhat 'lumpy' over the next several quarters (within the context of what we expect will continue to be a general trend upward), with large increases in some quarters, when one or more of these large projects are awarded, and with little change or small declines in quarters where no large projects are awarded.

Second Quarter Business Highlights

- In April 2009, Aecon completed the acquisition of Lockerbie & Hole, one of Canada's oldest and most respected mechanical and industrial contractors, based in Edmonton, Alberta.

- Average week day traffic on the Cross Israel Highway in June 2009 reached 109,000 vehicles, a 7.2% increase over June 2008.

- Nearly 2.2 million passengers passed through the existing Quito airport in the first six months of 2009, a 1.7% increase over the same period in 2008.

Subsequent Events

As previously disclosed, the Constitutional Court of Ecuador issued a ruling on July 29, 2009 regarding airport charges and services, which could have an impact on Aecon's concession interests in Quito, Ecuador. For more detail please see Aecon's press release on the matter dated July 30, 2009.

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 Six Months
($ millions) Ended June 30 Ended June 30
--------------- -----------------
2009 2008 2009 2008
---- ---- ---- ----

Revenues $ 234 $ 149 $ 345 $ 243

Segment operating profit (loss) 2.4 4.7 (10.8) (2.2)
--------------- -----------------
Return on revenue 1.0% 3.1% (3.1) (0.9)%
-----------------
-----------------
Backlog - June 30 $ 588 $ 600
---------------
---------------

(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.


In the Infrastructure segment, second quarter revenues of $234 million were $85 million higher than last year. The largest revenue increase ($46 million) occurred in materials operations, due largely to the acquisition of South Rock in the first quarter of 2009 (South Rock is considered part of this segment's materials operations). Revenues from utilities and international operations also added significantly to the increase.

Segment operating profit of $2.4 million in the quarter represents a $2.2 million decrease over the second quarter of 2008, as operating profit increases in the materials and utilities operations were offset by a $4 million decrease in the civil operations. Most of the decline in civil operating profits was due to lower margins from operations in Alberta this year and from a change in mix of work in Ontario as lower volumes of heavy civil work negatively impacted margins.

Segment backlog at June 30th was $588 million, a $12 million decrease from the same time last year.

- Buildings

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



Financial Highlights Three Months Six Months
($ millions) Ended June 30 Ended June 30
-------------- ----------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues $ 115 $ 110 $ 223 $ 218

Segment operating profit 0.9 0.7 - 2.3

-------------- ----------------
Return on revenue 0.8% 0.6% 0.0% 1.1%
----------------
----------------
Backlog - June 30 $ 521 $ 496
--------------
--------------


Second quarter revenues of $115 million in the Buildings segment were $5 million higher than a year earlier. The increase resulted primarily from a $23 million increase in Toronto operations, partly offset by a $14 million decline in Seattle operations. The increase in Toronto reflects the impact of several Infrastructure Ontario projects underway during the quarter.

Segment operating profit of $0.9 million in the second quarter of 2009 represents an improvement of $0.2 million from the same quarter last year. Most of the quarter-over-quarter improvement in operating profits occurred in the Montreal operations, where losses decreased from $3.2 million in 2008 to $0.2 million in 2009. This improvement was partially offset by declines in operating profits in the balance of the Buildings operations, primarily as a result of lower quarterly volumes in some business units and reduced contract margins on some projects in the Toronto business unit.

Backlog of $521 million at the end of the second quarter of 2009 was $25 million higher than at the same time last year, with the largest increase occurring in the segment's operations in the greater Toronto Area.

- 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, as well as Aecon's commercial mechanical operations. The segment includes all of the Lockerbie & Hole operations acquired earlier this year.



Financial Highlights Three Months Six Months
($ millions) Ended June 30 Ended June 30
-------------- ----------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues $ 245 $ 163 $ 341 $ 253

Segment operating profit 17.0 20.8 30.1 24.6

-------------- ----------------
Return on revenue 6.9% 12.8% 8.8% 9.7%
----------------
----------------
Backlog - June 30 $ 551 $ 385
--------------
--------------


In the Industrial segment, second quarter revenues of $245 million were $82 million higher than in 2008 due to the addition of $143 million in revenues from the newly acquired Lockerbie operations. Excluding Lockerbie, second quarter revenues decreased by $61 million due primarily to a decline in module assembly, pipe fabrication and site construction work in the oilsands, and less work in the Ontario power sector.

Industrial segment operating profit of $17 million represents a decline from $20.8 million in the same period in 2008, as increases in Ontario, Eastern Canada and IST operations, as well as a contribution from Lockerbie operations, were offset by a $14 million decline in Western Canada operations. The large decline in operating profits in Western Canada resulted from the significant reduction in oilsands related work.

Segment backlog of $551 million is $166 million higher than at the same time last year due to the addition of $395 million in backlog from the Lockerbie operations this quarter.

- 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 Six Months
($ millions) Ended June 30 Ended June 30
-------------- ----------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues $ 22 $ 15 $ 47 $ 31

Segment operating profit 3.3 2.4 7.7 3.8
-------------- ----------------
Return on revenue 14.8% 16.1% 16.3% 12.4%
-------------- ----------------


Concessions segment revenues of $22 million in the second quarter were up $7 million compared to the same period in 2008. The majority of the increase came from Aecon's interest in the operator of the Cross Israel Highway, a company in which Aecon holds a 30.6% interest.

Segment operating profit of $3.3 million in the second quarter increased by $0.8 million from the same period in 2008, with the majority of the increase coming from Aecon's interest in the operator of the Cross Israel Highway.

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 14% 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 June 30.

- Corporate and Other

Marketing, general and administrative expenses in the second quarter of 2009 were $1.7 million higher than in the corresponding period in 2008. The increases resulted primarily from higher training and employee compensation costs, and higher defined benefit pension plan expenses.

Also impacting Corporate and Other was a $1.2 million unfavourable change in foreign exchange gains and losses in the quarter.

Consolidated Results

The Consolidated Results for the three months and six months ended June 30, 2009 and 2008 are available at the end of this News Release.



Balance Sheet Highlights

---------------------------------------------------------------------------
(thousands of dollars) June 30, 2009 Dec. 31, 2008
------------- -------------
---------------------------------------------------------------------------

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Cash and cash equivalents, restricted cash,
marketable securities and term deposits $ 249,232 $ 321,067
---------------------------------------------------------------------------
Other current assets 666,260 502,925
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Property, plant and equipment 202,805 102,333
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Other long-term assets 333,673 262,539
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Total Assets $ 1,451,970 $ 1,188,864
---------------------------------------------------------------------------

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Current liabilities $ 630,912 $ 543,839
---------------------------------------------------------------------------
Non-recourse project debt 235,298 118,665
---------------------------------------------------------------------------
Other long-term debt 63,602 45,160
---------------------------------------------------------------------------
Other long-term liabilities 97,039 98,935
---------------------------------------------------------------------------
Shareholders' equity 425,119 382,265
---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,451,970 $ 1,188,864
---------------------------------------------------------------------------


Conference Call

A conference call has been scheduled for Wednesday, August 5, 2009 at 10:30 a.m. ET to discuss Aecon's 2009 second quarter financial results. Participants should dial 416-620-9810 or 1-800-734-1246 at least 10 minutes prior to the conference time of 10:30 a.m. A replay will be available after 12:00 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, August 12, 2009. The pass code is 21433184.

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. These "forward-looking" statements are based on currently available competitive, financial and economic data and operating plans but are subject to risks and uncertainties. The level of uncertainty associated with global economic events may impact the results of Aecon in a manner which is currently impossible to ascertain. In addition, factors could cause Aecon's actual results, performance or achievements to vary from those expressed or inferred herein, including without limitation, the successful integration of recent acquisitions, failure to achieve the targets associated with the construction of the new Quito airport or operation of the existing Quito airport as well as the associated political risk in Ecuador, and the impact of economic conditions in Western Canada. Risk factors are discussed in greater detail in the section on "Risk Factors" in the Annual Information Form filed on March 31, 2009 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.



Consolidated Statements of Income for the three months ended June 30, 2009
and 2008
(in thousands of dollars, except share and per share amounts) (unaudited)


2009 2008
------------------------

Revenues $ 613,237 $ 437,651

Direct costs and expenses (549,816) (385,913)
------------------------

63,421 51,738
------------------------

Marketing, general and administrative expenses (31,846) (20,294)

Foreign exchange losses (142) (220)

Gain (loss) on sale of assets 33 (114)

Depreciation and amortization (14,985) (6,367)

Interest expense (3,046) (2,266)

Interest income 1,759 1,775
------------------------

(48,227) (27,486)
------------------------

Income before income taxes and non-controlling
interests 15,194 24,252
------------------------

Income tax expense
Current (1,337) (630)
Future (3,217) (7,616)
------------------------

(4,554) (8,246)
------------------------

Income before non-controlling interests 10,640 16,006

Non-controlling interests (711) (411)
------------------------

Net income for the period $ 9,929 $ 15,595
------------------------
------------------------

Earnings per share
Basic $ 0.18 $ 0.32
Diluted $ 0.18 $ 0.31

Average number of shares outstanding
Basic 55,017,708 49,396,330
Diluted 56,416,294 50,355,576



Consolidated Statements of Income for the six months ended June 30, 2009
and 2008
(in thousands of dollars, except share and per share amounts) (unaudited)

2009 2008
------------------------

Revenues $ 954,122 $ 739,611

Direct costs and expenses (858,073) (669,350)
------------------------

96,049 70,261
------------------------

Marketing, general and administrative expenses (56,008) (36,443)

Foreign exchange gains (losses) (1,718) 109

Gain (loss) on sale of assets 56 (167)

Depreciation and amortization (23,032) (12,241)

Interest expense (4,682) (4,389)

Interest income 4,665 3,659
------------------------

(80,719) (49,472)
------------------------

Income before income taxes and non-controlling
interests 15,330 20,789
------------------------

Income tax expense
Current (2,540) (1,291)
Future (1,762) (2,947)
------------------------

(4,302) (4,238)
------------------------

Income before non-controlling interests 11,028 16,551

Non-controlling interests (1,725) (680)
------------------------

Net income for the period $ 9,303 $ 15,871
------------------------
------------------------

Earnings per share
Basic $ 0.18 $ 0.35
Diluted $ 0.17 $ 0.34

Average number of shares outstanding
Basic 52,626,103 45,902,214
Diluted 53,968,485 48,592,740


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