Aecon Group Inc.
TSX : ARE

Aecon Group Inc.

May 05, 2009 18:13 ET

Aecon Reports Solid First Quarter

- Revenues of $341 million (up 13% from same period last year) - Operating profit of $1.8 million (a $3.1 million improvement over same period last year) - Net loss of $0.6 million (vs. net income of $0.3 million in Q1 last year, which included valuation allowance reversal of $3.4 million) - Backlog of $1.4 billion (up 10% from a year ago) - Outlook remains positive in most markets despite economic turmoil but Industrial market weak, particularly in oilsands

TORONTO, ONTARIO--(Marketwire - May 5, 2009) - Aecon Group Inc. (TSX:ARE) today reported solid results in the first quarter of 2009.

Revenue, Operating Results and Net Income



Three Months Ended March 31
----------------------------
$ millions 2009 2008
---- ----
Revenues $ 341 $ 302
Gross margin 32.6 18.5
EBITDA 9.8 4.5
Operating profit (loss) 1.8 (1.3)
Interest expense (1.6) (2.1)
Income tax recovery (expense) 0.3 4.0
Net income (loss) for the period (0.6) 0.3
----------------------------
Backlog - March 31 $ 1,359 $ 1,231


Revenues in the first quarter of 2009 totalled $341 million, a 13% increase over results reported a year ago, reflecting revenue growth in all four of Aecon's operating divisions.

Gross margins (revenues less direct costs and expenses) increased to $32.6 million, from $18.5 million in the same quarter last year. Margin growth in the Industrial and Concessions segments drove the increase, while margins decreased in the Buildings segment and remained virtually unchanged in the Infrastructure segment.

EBITDA (representing income or loss from operations before interest expense, income taxes, depreciation and amortization, and non-controlling interests) increased to $9.8 million, from $4.5 million in the same quarter of 2008.

Operating profit (profit from operations before interest expense, income taxes and non-controlling interests) of $1.8 million compares to a first quarter operating loss last year of $1.3 million, as increased earnings in the Industrial and Concessions segments offset losses in the Infrastructure and Buildings segments.

Net loss for the quarter of $0.6 million ($0.01 loss per share), compares to net income of $0.3 million in the first quarter of 2008 ($0.01 per share), which included a $3.4 million reversal of a valuation allowance related to Aecon's tax assets.

Marketing, general and administrative expenses amounted to $24.2 million in the quarter, an increase from $16.1 million in the same period last year, due largely to growth in operations such as the acquisition of South Rock Ltd. in January 2009. MG&A as a percentage of revenues increased from 5.3% in the first quarter of 2008 to 7.1% this quarter.

Depreciation and amortization expense of $8.0 million is $2.2 million higher than last year primarily as a result of the higher depreciation charges on equipment acquired as part of the South Rock acquisition, and from higher amortization charges related to Quito concession operations.

Outlook

"Notwithstanding the current economic and financial environment, 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," said John M. Beck, Chairman and CEO, Aecon Group Inc. "Aecon's outlook is also bolstered by the addition earlier this year of Lockerbie & Hole and South Rock to the Aecon team, both of which add significant depth and strength in the western Canadian market."

"The Industrial segment is expected to experience significant weakness over the next year or two, especially in the oilsands related activity which has slowed dramatically as several projects have been delayed. At the same time, the Infrastructure and Buildings segments are expected to benefit from near-record backlog and from government infrastructure programs designed to stimulate activity in these sectors," said Scott Balfour, President and CFO, Aecon Group Inc. "The extraordinary performance of the Industrial segment over the past two years, combined with the strong outlook of the Infrastructure and Buildings segments, are evidence that Aecon's strategy of operational diversity in select markets is the right one."

Backlog and New Business Awards

Backlog at March 31, 2009 was $1,359 million, an increase of $128 million over the amount on hand at the same time in 2008, and a new record for backlog at the end of the first quarter.

Not included in backlog, but important to Aecon's activities, are the revenues from Aecon's growing alliances and supplier-of-choice arrangements that do not specify the amount of work to be carried out at any one time.

New contract awards in the quarter of $296 million were almost identical to the $298 million recorded in the first quarter of 2008.

First Quarter Business Highlights

- The January 2009 issue of Report on Business Magazine recognized Aecon as one of the 50 Best Employers in Canada (this year placing Aecon in the top 10), an important strategic achievement in an industry where access to quality people is key to profitable growth.

- In January 2009, Aecon completed the acquisition of South Rock Ltd., an established infrastructure construction business in Alberta focusing primarily on the Southern Alberta civil construction market.

- In February 2009, Aecon announced the acquisition of Lockerbie & Hole, one of Canada's oldest and most respected mechanical and industrial contractors, based in Edmonton, Alberta. The Plan of Arrangement was concluded on April 1, 2009.

- Average week day traffic on the Cross Israel Highway in March 2009 reached 102,000 vehicles, a 4.4% increase over March 2008.

- In total, nearly 1.1 million passengers passed through the existing Quito airport in the first three months of 2009, a 1.3% increase over the same period in 2008.

Segmented Results

Aecon reports its results in four operating 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)
Three Months Ended March 31
-----------------------------
$ millions 2009 2008
---- ----

Revenues $ 112 $ 95
Segment operating loss (13.2) (6.8)
-----------------------------
Return on revenue (11.8)% (7.2)%
-----------------------------
Backlog - March 31 660 414
-----------------------------
-----------------------------

(1) Segment operating profit (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.


For the quarter ended March 31, 2009, the Infrastructure segment reported revenues of $112 million, an 18% increase over the same quarter in 2008. Revenues from civil construction, materials and international operations increased, while revenues from utilities operations were essentially unchanged.

The Infrastructure segment operating loss of $13.2 million in the first quarter of 2009 represents a $6.3 million increase over the same quarter in 2008, as operating profits decreased in civil construction, materials and utilities operations, offsetting an increase in the operating profits from international operations. Most of the decline was the result of seasonal factors in Ontario and Alberta, including the anticipated seasonal losses from the newly acquired South Rock operations, as well as a decline in work volumes in Ontario heavy civil operations. International operations benefited from the recognition of profits on the Quito airport construction project, which reached 44% completion in the first quarter of 2009, whereas no profits were recognized on this project in the first quarter of 2008.

Backlog at March 31, 2009 was $660 million, a $246 million increase over the same date a year ago. The quarter-over-quarter improvement results primarily from higher backlog in the civil and materials operations, mostly as a result of the project award for the Seymour Capilano Filtration Project and the acquisition of South Rock. New contract awards totaled $152 million in the first quarter of 2009 compared to $135 million in the corresponding period in 2008.

- 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 Ended March 31
----------------------------
$ millions 2009 2008
---- ----

Revenues $ 109 $ 108
Segment operating profit (loss) (1.0) 1.6
----------------------------
Return on revenue (0.9)% 1.5%
----------------------------
Backlog - March 31 520 428
----------------------------
----------------------------


First quarter revenues in the Buildings segment of $109 million were essentially unchanged from last year, as revenue increases of $15 million in the segment's Toronto operations were almost entirely offset by revenue decreases of $7 million in Montreal and $8 million in Seattle.

The segment operating loss of $1.0 million in the quarter compares with a profit of $1.6 million in the same quarter last year. Most of the decrease in operating profits occurred in Montreal and Seattle, partly offset by an increase in Toronto. The Montreal results included the impact of reserves established for potential uncollectible amounts on certain projects, while operating profits from Toronto were impacted by Aecon's policy not to recognize profits on large projects until they are 20% complete. Thus, Toronto reported revenues from a few projects where no profits were recognized because these projects had not yet reached 20% completion.

Backlog of $520 million at the end of the first quarter was $92 million higher than at the same time in 2008, with the largest increase in backlog occurring in the segment's Toronto operations. New contract awards totaling $94 million were recorded in the first quarter of 2009, which compares with awards of $56 million in the same period in 2008. The largest contributor to new awards in 2009 was the $82 million award from Infrastructure Ontario related to the redevelopment of the Lakeridge Health Oshawa hospital project.

- 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
Three Months Ended March 31
----------------------------
$ millions 2009 2008
---- ----
Revenues $ 97 $ 91
Segment operating profit 13.2 3.8
----------------------------
Return on revenue 13.6% 4.2%
----------------------------
Backlog - March 31 179 390
----------------------------
----------------------------


Industrial revenues of $97 million in the first quarter of 2009 were 6% higher than in the same period last year. All operating units reported revenue increases with the exception of Western Canada, where revenues were impacted by a virtual halt in new capital spending in the oilsands in recent months.

Operating profit increased to $13.2 million in the segment from $3.8 million in the first quarter of 2008. The substantial increase was largely due to margin improvements on a small number of projects as well as the inclusion of profit recognition this year on a project that had not reached the required 20% completion by the end of the first quarter in 2008.

Backlog of $179 million at March 31, 2009 was $211 million lower than at the same time last year, with the largest decrease occurring in Ontario construction operations.

New contract awards of $26 million in the first three months of 2009 were $71 million lower than in the same period 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 investments in transportation infrastructure concessions, including the Cross Israel Toll Highway and Quito International Airport concession companies.



Financial Highlights
Three Months Ended March 31
----------------------------
$ millions 2009 2008
---- ----
Revenues $ 25 $ 15
Segment operating profit 4.4 1.3
----------------------------
Return on revenue 17.6% 8.8%
----------------------------
----------------------------


Concessions segment revenues of $25 million in the first quarter of 2009 were up $10 million from the same quarter of 2008. 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 31% interest.

Segment operating profit of $4.4 million in the first quarter of 2009 increased by $3.1 million over the same period in 2008, 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.

- Corporate and Other

Net Corporate expenses (before interest income and corporate allocations to the segments) were $4.6 million in the quarter compared to $3.1 million in the first quarter of 2008. The increase was primarily due to increased staffing levels including increases in salaries and performance-related incentive costs.

Consolidated Results

The Consolidated Results for the first quarters of 2009 and 2008 are available at the end of this News Release.



Balance Sheet Highlights

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

----------------------------------------------------------------------------
Cash, cash equivalents and restricted cash $ 409,926 $ 321,067
----------------------------------------------------------------------------
Other current assets 462,574 502,925
----------------------------------------------------------------------------
Property, plant and equipment 149,510 102,333
----------------------------------------------------------------------------
Other long-term assets 292,311 262,539
----------------------------------------------------------------------------
Total Assets $ 1,314,321 $ 1,188,864
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Current liabilities $ 560,519 $ 543,839
----------------------------------------------------------------------------
Non-recourse project debt 229,988 118,665
----------------------------------------------------------------------------
Other long-term debt 39,868 45,160
----------------------------------------------------------------------------
Other long-term liabilities 102,800 98,935
----------------------------------------------------------------------------
Shareholders' equity 381,146 382,265
----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,314,321 $ 1,188,864
----------------------------------------------------------------------------


Conference Call

A conference call has been scheduled for Wednesday, May 6, 2009 at 10:00 a.m. ET to discuss Aecon's 2009 first quarter financial results. Participants should dial 416-620-2416 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 12:00 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, May 13, 2009. The pass code is 21423385.

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. Recent events in global financial and credit markets have resulted in abnormally high market volatility and a level of uncertainty not seen in decades. The high level of uncertainty arising from this crisis may continue to impact the global, North American and Canadian economies in unpredictable ways and 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, the ability of the Eastmain Joint Venture to recover the full value of unpriced change orders, and failure to achieve the targets associated with the construction of the new Quito airport or operation of the existing Quito airport. 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 (Loss) for the three months
ended March 31, 2009 and 2008 (in thousands of dollars, except
share and per share amounts) (unaudited)

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

Revenues $ 340,885 $ 301,960

Direct costs and expenses (308,257) (283,437)
-------------------------

32,628 18,523

Marketing, general and administrative expenses (24,162) (16,149)

Foreign exchange gains (losses) (1,576) 329

Gain (loss) on sale of assets 23 (53)

Depreciation and amortization (8,047) (5,874)

Interest expense (1,636) (2,123)

Interest income 2,906 1,884
-------------------------

(32,492) (21,986)

Income (loss) before income taxes and
non-controlling interests 136 (3,463)
-------------------------

Income tax (expense) recovery
Current (1,203) (661)
Future 1,455 4,669
-------------------------

252 4,008
-------------------------

Income before non-controlling interests 388 545

Non-controlling interests (1,014) (269)
-------------------------

Net income (loss) for the period $ (626) $ 276
-------------------------
-------------------------

Earnings (loss) per share
Basic $ (0.01) $ 0.01
Diluted $ (0.01) $ 0.01

Average number of shares outstanding
Basic 50,207,924 42,369,274
Diluted 50,953,865 47,005,640


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