- Improved operating results from continuing operations in both Q2 and first half
- Buildings segment reports second consecutive quarterly profit after difficult 2004
- Industrial segment gaining momentum after slow Q1
- Signing of remaining documents for Quito Airport project expected later this month
Toronto, Ontario – August 11, 2005: Aecon Group Inc. (TSX: ARE) today reported improved operating results from continuing operations in the second quarter and first half of 2005 compared to the same periods
last year.
Revenue, Operating Results and Net Income
Second quarter revenue from continuing operations was $283 million, an $18 million increase compared to the same quarter in 2004.
Operating income from continuing operations (representing income from operations before extraordinary items, interest, income taxes and discontinued operations) in the quarter amounted to $4.4 million, an improvement from the $1.7 million
recorded in the same period last year. Pre-tax income before discontinued operations was $1.9 million in the quarter, a $1.1 million improvement over the same quarter of 2004.
Net income before discontinued operations in the second quarter was $1.7 million ($0.06 per share), compared to $0.5 million ($0.02 per share) in 2004. Net income in 2004, including the results of discontinued operations, was $2.4 million
($0.08 per share).
In the first half of the year, revenue from continuing operations was $456 million, virtually unchanged from the $454 million recorded in the same period last year.
Aecon's operating loss from continuing operations in the first half amounted to $4.8 million, an improvement from the $7.8 million loss recorded in the first half of last year. Pre-tax loss before discontinued operations and extraordinary
items was $9.1 million in the first half, a $0.5 million improvement over the same period of 2004.
Net loss in the half amounted to $6.7 million ($0.23 per share). Had Aecon's accounting for income taxes remained the same in 2005 as in previous years (and a valuation allowance against future tax assets not been required), the net loss
in the first half would have been $2.9 million. This compares to the $6.5 million ($0.24 per share) loss before discontinued operations recorded in the corresponding period last year.
Outlook
"Overall, as long as we can continue to manage the risks we've identified, I fully expect to report significantly improved results and a return to profitability in 2005," said John M. Beck, Chairman and CEO, Aecon Group Inc. "Not only
are our core construction operations performing better but results from our highway concession in Israel and the imminent financial close of our airport concession in Ecuador add to our optimism for the future."
Backlog and New Contract Awards
Aecon's backlog was $530 million at June 30, 2005, a decrease of $39 million from the same time last year. Backlog is expected to rise sharply when the anticipated financial close of the Quito Airport project will add approximately $250
million to Aecon's backlog. Not included in backlog are the significant expected revenues from Aecon's growing alliances and supplier-of-choice arrangements, largely in the industrial and utilities sectors.
New contract awards of $223 million were booked in the second quarter, which compares with $255 million in the second quarter of 2004.
Segmented Results
Aecon reports its results in three segments: Infrastructure, Buildings and Industrial.
Infrastructure
The Infrastructure segment includes all aspects of civil construction from roads, highways, bridges and tunnels to airports, marine facilities, transit and power projects as well as utilities construction and infrastructure development.
Financial Highlights:
|
Financial Highlights
|
| $ millions |
Three months ended June 30 |
Six months ended June 30 |
| |
|
2005 |
|
2004 |
|
% Change |
|
2005 |
|
2004 |
|
% Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
$ |
107.4 |
$ |
113.3 |
|
(5.2%) |
$ |
165.0 |
$ |
168.3 |
|
(1.9%) |
| Operating income (loss) |
|
4.7 |
|
5.2 |
|
(8.6%) |
|
0.1 |
|
(0.8) |
|
n/a |
| Return on revenue |
|
4.4% |
|
4.6% |
|
(4.4%) |
|
0.1% |
|
(2.1%) |
|
n/a |
Revenues from Aecon's Infrastructure segment decreased marginally in the second quarter and first half as gains in roadbuilding and utilities operations were offset by declines from the segment's Quebec operations and other heavy civil
operations.
In the second quarter, revenues of $52 million from roadbuilding operations were $20 million higher than last year, reflecting a much higher volume of activity due partly to exceptional weather conditions experienced in Ontario during
the months of May and June but also because of the unusually low volumes recorded last year as a result of project delays and a government labour dispute. Utilities operations generated revenues of $34 million, a $6 million increase
from the same quarter last year. Revenues from the segment's Quebec operations dropped by $20 million, mostly as a result of the substantial completion of the hydro-electric dam project in Toulnustouc. Other heavy civil operations
posted a $15 million revenue decrease from last year largely due to the completion of the Cross Israel Highway in Israel and the Nathpa Jhakri project in India.
For the six months, Infrastructure revenues decreased marginally from $168 million in 2004 to $165 million this year. Similar to the second quarter, revenues gains of $25 million from roadbuilding operations and $13 million from utilities
operations were offset by declines of $13 million from Quebec operations and $29 million from other heavy civil operations. The reasons for the year-to-date revenue changes are essentially the same as those cited for the second quarter
changes outlined above.
Income before interest and income taxes from the Infrastructure segment was $4.7 million in the quarter, a $0.5 million decline from the same quarter last year. For the six months, income before interest and income taxes grew to $4.2 million,
an increase of $5.0 million.
Second quarter earnings increases of $4.6 million from roadbuilding operations and $1.7 million from utilities operations were offset by a $2.4 million decline in Quebec operations and a $4.4 million decline from other heavy civil operations.
The increased income from roadbuilding operations was due to $3.5 million in claim settlements as well as the higher volumes recorded this year. The earnings decline in Quebec was due largely to the recording last year of a $2.3 million
profit on the Eastmain hydro-electric project in Quebec - a profit that was subsequently written-off as a result of a decision taken in the fourth quarter of 2004 to reduce the profit estimate on this project to zero. Management believes
it will be successful in recovering from the client the value of unpriced change orders that led to the write-down but acknowledges that an ongoing risk remains with respect to this project.
For the six months, a significant component of the earnings improvement is the result of a first quarter extraordinary gain of $4.1 million relating to Aecon's interest in the Cross Israel Highway. Also of note in the half were improvements
in roadbuilding operations of $4.6 million and utilities operations of $2.2 million as well as declines of $4.0 from other heavy civil operations (largely relating to reduced activity in Israel and India) and a $2.5 million decline
related to foreign exchange.
Tolling and highway operations are functioning well on the Cross Israel Highway, with traffic volumes continuing in the range anticipated. The projected after tax internal rate of return on the project remains in the 14% range assuming
full exercise of the State and lender options with dividends and accounting profits expected to begin in 2009.
For 2005, the Infrastructure segment is expected to contribute increased earnings as compared to last year. In addition, signing of the financing documents for the Quito Airport project is expected to occur later this month, with satisfaction
of the final conditions precedent and flow of funds expected in the fourth quarter.
Business highlights for the Infrastructure segment include:
- Expertech chose Aecon as its strategic partner for its Ontario construction requirements. The new contracts will add markets to Aecon's existing territory so that Aecon will now provide approximately 95% of the Expertech subcontracted
construction requirements across Ontario.
- Tolling and highway operations are functioning well on the Cross Israel Highway. Traffic continues to ramp-up and has now reached 70,000 trips per day.
- The signing of the revised core project documents and ancillary agreements for the Quito Airport project took place on June 22, 2005. The signing of the remaining project and financing documents is expected to be completed in late
August with financial close and construction starting in the fourth quarter 2005.
Buildings
The Buildings segment includes all aspects of Aecon's commercial, institutional and multi-unit residential building construction and renovation activities.
Financial Highlights:
|
Financial Highlights
|
| $ millions |
Three months ended June 30 |
Six months ended June 30 |
| |
|
2005 |
|
2004 |
|
% Change |
|
2005 |
|
2004 |
|
% Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
$ |
108.2 |
$ |
98.7 |
|
9.6% |
$ |
185.3 |
$ |
182.3 |
|
1.7% |
| Operating income (loss) |
|
0.4 |
|
(2.1) |
|
n/a |
|
0.6 |
|
(3.8) |
|
n/a |
| Return on revenue |
|
0.4% |
|
(2.1%) |
|
n/a |
|
0.3% |
|
(2.1%) |
|
n/a |
Revenues in the Buildings segment increased by $10 million in the second quarter and $3 million in the first half of 2005 due primarily to stronger volumes in the Toronto and Montreal regions.
In the quarter, the volume of work performed in the Greater Toronto Area (GTA) was $13 million higher than last year, while there was a $7 million revenue increase from Montreal operations. Revenues generated in the United States through
the segment's Seattle office declined by $10 million and revenues from the balance of the Buildings operations remained largely unchanged.
For the six months, increased volumes of $15 million were recorded in the GTA, while revenues from the Montreal region grew by $14 million compared to the first half of 2004. Revenues from the Seattle region were down $20 million, and
operations in other regions were down $5 million. The increased volumes from the GTA for both the second quarter and year-to-date are due principally to work on two large projects that were not yet underway at this time last year.
The revenue increase from Montreal for the quarter is mostly attributable to new work, while the year-to-date increase reflects a combination of new work and the acquisition of Cegerco CCI Inc. in the second quarter of 2004. The decline
in revenues from Seattle reflects a combination of delays in awards for casino projects and less new work generally.
Operating results within the Buildings segment were significantly better in both the second quarter and first half than in the same periods last year.
Of the $2.5 million improvement seen in the second quarter, approximately $1.2 million relates to losses incurred last year in Ottawa by Westeinde Construction Ltd., which was acquired in November 2003. In addition, operating profits from
the GTA and Montreal regions were $0.7 million and $1.0 million higher respectively than the second quarter last year, consistent with the volume increases reported in these regions. The decline in revenues from Seattle caused a small
$0.2 million drop in operating profit compared to last year, while profit from the balance of operations was down $0.2 million.
For the six months, the Buildings segment generated an improvement of $4.4 million: $1.6 million related to Westeinde; $2.4 million in the GTA and $1.3 million in Montreal - all for reasons similar to those cited above for the second quarter
improvement.
These second quarter and first half results further increase management's confidence that the turnaround in Aecon's Buildings segment has taken hold. An improvement in the segment's results is expected in 2005, including a return to profitability
this year.
Business highlights for the Buildings segment include:
- Aecon-Cegerco was named general contractor for the construction of two projects in the Montreal area: the Saint-Léonard-sur-le-Parc seniors' residence valued at $13 million and the $10.6 million multi-level expansion of the
parking lot at the Montreal-Trudeau Airport. This last project is in addition to the already announced $12 million terminal refurbishing contract previously awarded by the Aéroports de Montréal.
- Atlantic Buildings was awarded a construction management contract for the $25.5 million Applied Science Building Renewal Project at Saint Mary's University, Halifax, Nova Scotia. The existing building being refurbished totals 71,500
square feet and the project will also include construction of a five-storey, 22,500 square-foot addition at the north end of the building which will serve as premium teaching and research space.
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:
|
Financial Highlights
|
| $ millions |
Three months ended June 30 |
Six months ended June 30 |
| |
|
2005 |
|
2004 |
|
% Change |
|
2005 |
|
2004 |
|
% Change |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
$ |
68.7 |
$ |
53.5 |
|
28.3% |
$ |
107.7 |
$ |
104.3 |
|
3.2% |
| Operating income (loss) |
|
2.3 |
|
1.8 |
|
33.2% |
|
0 |
|
5.1 |
|
(100.4%) |
| Return on revenue |
|
3.4% |
|
3.3% |
|
3.0% |
|
0.0% |
|
4.9% |
|
(100.0%) |
Revenues in the Industrial segment increased by $15 million in the second quarter and $3 million in the first half as increases in Western Canada, Innovative Steam Technologies (IST) and pipe fabrication more than offset volume reductions
in industrial construction in Ontario and Eastern Canada.
In Western Canada, revenues of $32 million were $18 million ahead of last year's second quarter due primarily to major demolition and refurbishment work following a fire at an oilsands facility in Fort McMurray, Alberta. Pipe fabrication
revenues in Ontario and Eastern Canada were also substantially higher, growing from $4 million last year to $8 million this year. Revenues from IST were up in the quarter by $3 million over 2004 as there was very little production
activity during last year's second quarter while engineering work was being done in preparation for production in the second half of 2004. Revenues from construction operations in Ontario and Eastern Canada were down $9 million from
the prior year as volumes were extraordinarily high in 2004 due to a large power contract in New Brunswick. The absence of a similar project in 2005 brought revenue levels in the second quarter back to more normal levels.
For the six months, revenues from Western Canada were up by $8 million and fabrication revenues in Ontario and Eastern Canada were up by $7 million. IST revenues were up $5 million as backlog in place at the beginning of the year was worked-off.
Revenues from industrial construction activities were down by $17 million for the reasons noted above.
Operating profit in the Industrial segment increased by $0.5 million in the second quarter while first half earnings fell by $5.1 million.
In the second quarter, Aecon's Western Canadian operations generated a profit of $1.6 million, up from $0.7 million in the same quarter of 2004 and consistent with the increased revenues reported in the quarter. Similarly, the revenue
increases from pipe fabrication work in Ontario and Eastern Canada and those at IST resulted in improved results. Pipe fabrication recorded a loss of $0.5 million compared to a loss of $1.1 million in 2004, and IST reported earnings
of $0.7 million compared to a loss of $0.6 million in the second quarter of 2004. The only Industrial sector not to record improved results in the quarter was industrial construction in Ontario and Eastern Canada. Triggered principally
by the drop in revenues noted above, this sector's profit declined from $2.7 million in the second quarter of 2004 to $0.5 million in 2005.
For the first half of 2005, the Industrial segment reported break-even results compared to a profit of $5.1 million last year. Despite a $7.8 million increase in revenues from Western Canadian operations, profit in the segment fell short
of last year by $1.8 million due largely to lower profit margins as a result of the mix of work performed. In 2004, Western Operations was performing mostly high margin module and fabrication assembly work whereas in the first half
of 2005 much of the work was lower margin site construction work. Pipe fabrication and module related work in Western Canada is expected to be very active in the last half of the year. Similarly, despite the increase in revenues, IST
performed only marginally better than last year as changes in product mix and higher overhead costs in the first quarter offset the $1.3 million improvement in profits in the second quarter. The largest decline in profits came from
construction operations in Ontario and Eastern Canada, where profits of $4.9 million in the first half of 2004 fell to $0.5 million in 2005 due to the revenue decline noted earlier. Pipe fabrication in Ontario and Eastern Canada was
the only area where the Industrial sector had better results than last year, going from a loss of $2.2 million in 2004 to a lesser loss of $1.1 million in 2005. The improved results reflect the increase in revenues compared to last
year.
Although Aecon's Industrial earnings in the first half of 2005 are below those reported in the same period last year, an improvement in profit contribution is expected by year end. This improvement is expected to be led by the Western
Operations business unit where considerable new work has been committed by our customers in Alberta, notably in work related to oilsands projects in northern Alberta. These new projects are expected to add significantly to both segment
revenues and operating income over the balance of the year. In addition, construction in the nuclear sector is becoming a major opportunity for Aecon's Industrial segment, primarily in 2006 and beyond, as the need for additional generating
capacity in Ontario drives the re-start of idle nuclear capacity and potentially the development of new capacity.
Business Highlights for the Industrial segment include:
- Innovative Steam Technologies was awarded a contract to supply its 100th once through steam generator (OTSG) to Nar Enerji in Cerkezkoy, Turkey. The OTSG for Nar Enerji is expected to be delivered on an accelerated schedule of six
months and is valued at approximately $3 million.
- Aecon Industrial secured a $17 million contract at Bruce Power's nuclear generating station near Tiverton, Ontario for the Bruce A In-Station Used Fuel Dry Storage Project. Aecon's role is to make modifications on a design-build basis
to the Secondary Irradiated Fuel Bay where spent fuel is stored.
- Aecon Industrial, including its Fabrication Facilities and its Construction Division, has been recertified to ISO 9001-2000.
Corporate and Other
Net corporate expenses amounted to $3.0 million in the second quarter (compared to $3.2 million in 2004) and $5.5 million in the first half ($8.3 million in 2004). Included in corporate expenses in 2004 was a $2.6 million lease termination
payment related to the relocation and consolidation of Aecon's offices in the Toronto area and $0.7 million relating to Hochtief's proposed privatization of Aecon.
Consolidated Results
The Consolidated Results for the second quarter and first half are available at the end of this news release. For more comprehensive disclosure please refer to Aecon's second quarter Management Discussion and Analysis to be posted on SEDAR.
Balance Sheet Highlights
(in thousands of dollars) (unaudited)
|
Balance Sheet Highlights
|
| |
|
|
|
|
| Cash, cash equivalents, restricted cash and marketable securities |
$ |
47,618 |
$ |
65,722 |
| Other current assets |
|
279,386 |
|
249,674 |
| Property, plant and equipment |
|
58,380 |
|
58,983 |
| Other long-term assets |
|
89,313 |
|
80,948 |
| Total Assets |
$ |
474,697 |
$ |
455,327 |
| |
|
|
|
|
| Current liabilities |
$ |
260,843 |
$ |
261,797 |
| Long-term debt |
|
40,132 |
|
40,352 |
| Other long-term liabilities |
|
73,234 |
|
50,222 |
| Shareholders' equity |
|
100,488 |
|
102,956 |
| Total Liabilities and Shareholders' Equity |
$ |
474,697 |
$ |
455,327 |
Conference Call
A conference call has been scheduled for Thursday, August 11 at 10:30 a.m. (Toronto time) to discuss Aecon's second quarter financial results. Participants should dial 1-866-250-4375 at least 10 minutes prior to the conference time of
10:30 a.m.
For those unable to attend the call, a replay will be available after 1:30 p.m. at 1-877-289-8525 or 416-640-1917 until midnight, August 25, 2005. The passcode is 21133538#.
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.
The information in this news release includes certain forward-looking statements. These statements are based upon assumptions that are subject to significant risks and uncertainties which are generally described in Section 3.2 "Risk Factors"
in the 2005 Annual Information Form available 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 Operations For the Three Months ended June 30, 2005 and 2004
(in thousands of dollars, except share amounts) (unaudited)
|
Consolidated Statements of Operations For the Three Months ended June 30, 2005 and 2004
|
| |
|
2005 |
|
2004 |
| Revenues |
$ |
282,978 |
$ |
264,705 |
| Costs and expenses |
|
265,503 |
|
249,613 |
| Marketing, general and administrative expenses |
|
12,029 |
|
11,851 |
| Depreciation and amortization |
|
1,968 |
|
2,012 |
| Gain on sale of assets and investments |
|
(989) |
|
(428) |
| Interest expense, net |
|
2,542 |
|
855 |
| |
|
281,053 |
|
263,903 |
| Income before income taxes and discontinued operations |
|
1,925 |
|
802 |
| Income taxes (recovery) |
|
|
|
|
| Current |
|
255 |
|
2,290 |
| Future |
|
-- |
|
(1,957) |
| |
|
255 |
|
333 |
| Income before discontinued operations |
|
1,670 |
|
469 |
| Income from discontinued operations |
|
-- |
|
1,912 |
| Net income for the period |
$ |
1,670 |
$ |
2,381 |
| Earnings per share before discontinued operations |
|
|
|
|
| Basic |
$ |
0.06 |
$ |
0.02 |
| Diluted |
$ |
0.05 |
$ |
0.02 |
| Net earnings per share |
|
|
|
|
| Basic |
$ |
0.06 |
$ |
0.08 |
| Diluted |
$ |
0.05 |
$ |
0.08 |
| Average number of shares outstanding |
|
|
|
|
| Basic |
|
29,279,582 |
|
28,472,357 |
| Diluted |
|
32,992,960 |
|
32,704,367 |
Consolidated Statements of Operations For the Six Months ended June 30, 2005 and 2004
(in thousands of dollars, except share amounts) (unaudited)
|
Consolidated Statements of Operations For the Three Months ended June 30, 2005 and 2004
|
| |
|
2005 |
|
2004 |
| Revenues |
$ |
455,850 |
$ |
453,719 |
| Costs and expenses |
|
433,083 |
|
432,354 |
| Marketing, general and administrative expenses |
|
24,846 |
|
25,767 |
| Depreciation and amortization |
|
3,734 |
|
3,759 |
| Gain on sale of assets and investments |
|
(1,012) |
|
(398) |
| Interest expense, net |
|
4,278 |
|
1,787 |
| |
|
464,929 |
|
463,269 |
| Loss before income taxes, extraordinary items and discontinued operations |
|
(9,079) |
|
(9,550) |
| Income taxes (recovery) |
|
|
|
|
| Current |
|
1,085 |
|
2,955 |
| Future |
|
-- |
|
(6,032) |
| |
|
1,085 |
|
(3,077) |
| Loss before extraordinary items and discontinued operations |
|
(10,164) |
|
(6,473) |
| Extraordinary gain, net of income taxes |
|
3,444 |
|
-- |
| Loss before discontinued operations |
|
(6,720) |
|
(6,473) |
| Income from discontinued operations |
|
-- |
|
6,492 |
| Net (loss) income for the period |
$ |
(6,720) |
$ |
19 |
| Loss per share before extraordinary items and discontinued operations |
|
|
|
|
| Basic |
$ |
(0.35) |
$ |
(0.24) |
| Diluted |
$ |
(0.35) |
$ |
(0.24) |
| Net (loss) earnings per share |
|
|
|
|
| Basic |
$ |
(0.23) |
$ |
-- |
| Diluted |
$ |
(0.23) |
$ |
-- |
| Average number of shares outstanding |
|
|
|
|
| Basic |
|
29,292,929 |
|
26,501,758 |
| Diluted |
|
33,031,797 |
|
30,651,981 |