Skip to main content

Aecon reports improved operating results

May 15, 2006

Ø Revenues and operating profits up

Ø Margins strengthened

Ø Increased new awards drive backlog to highest in almost four years

Ø Balance sheet strengthened

Ø Improved margins and a positive net income expected in 2006

 

Toronto , Ontario  – May 15, 2006: Aecon Group Inc. (TSX: ARE) today reported improved margins and operating results in the first quarter of 2006 compared to the same quarter last year.

Revenue, Operating Results and Net Income

Revenues in the first quarter of 2006 totalled $201 million, an increase of $28 million or 16% over the same period last year. This growth in revenues occurred in all segments, with the largest increase, $14 million, coming from the Industrial segment.

Gross margins (revenues less costs and expenses) as a percentage of revenues increased from 3.0% in the first quarter of 2005 to 3.2% in the current quarter.

Operating results (representing the results from operations before interest, income taxes and extraordinary items) amounted to a loss of $8.4 million, an improvement of $0.9 million from the first quarter of 2005. The improvement in operating results came largely from Industrial operations in western Canada as well as Civil and Utilities operations in Ontario.

Net loss in the quarter was $10.9 million ($0.36 per share) as compared to a loss before extraordinary items of $11.8 million ($0.40 per share) and a net loss after extraordinary items of $8.4 million ($0.29 per share) in the same quarter last year. The 2005 results included an extraordinary gain of $3.4 million after taxes.

 

Financial Highlights – Three months ended March 31

 

 

 

 

 

 

 

 

 

$ millions

 

2006

 

2005

 

 

 

 

 

Revenues

$

201

$

173

Operating profit (loss)*

 

(8.4)

 

(9.3)

Interest Expense

 

2.4

 

1.7

Loss before income taxes and extraordinary gain

 

(10.8)

 

(11.0)

Income taxes

 

0.1

 

0.8

Extraordinary gain, net of income taxes

 

-

 

3.4

Net loss

 

(10.9)

 

(8.4)

Backlog - March 31

$

657

$

590

* Operating profit (loss) represents the profit (loss) from operations before interest, income taxes and extraordinary items
Outlook

“Aecon's first quarter results confirm that the improvement we saw in 2005 is continuing,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “The strength of the Canadian construction market, combined with the operational improvements now in place, should drive increased margins and a positive net income for Aecon in 2006.”

“Aecon's core markets in Canada continue to strengthen and I expect that trend to continue – potentially through the end of the decade,” said Scott Balfour, President and CFO, Aecon Group Inc. “This trend, coupled with a narrowed strategic focus on our core markets and an increased discipline in our bidding and negotiating process, is driving our margins higher and increasing the value of our backlog.”

The Cross Israel Highway, Aecon's most significant infrastructure investment to date, is performing well and traffic is ramping up as anticipated, with average weekday traffic in the first quarter of 2006 growing by approximately 14% as compared to the first quarter last year.

“With over two years of solid, steady traffic growth now proven, and the highway's reputation as a financial success growing, it may be time over the next 18 months to monetize a portion of our investment in the project,” Mr. Beck said.

Aecon's other large infrastructure investment, the Quito Airport concession, took full effect in January 2006, with financial close for construction of the new airport expected before the end of the second quarter.

Backlog and New Business Awards

New business awards in the quarter increased by $82 million over the same quarter last year, driving Aecon's backlog to $657 million at March 31, 2006, the highest it has been in almost four years ($67 million higher than at the same time last year and $80 million higher than at year end). On a segmented basis, increases of more than $100 million in each of the Infrastructure and Industrial segments since March 31 of last year offset a decline in the Buildings segment where a focus on driving margin improvement has replaced the focus on revenue growth. Backlog is expected to increase by about a further $250 million when the Quito Airport project financing closes.

Not included in backlog but important to Aecon's prospects are the expected revenues from Aecon's growing alliances and supplier-of-choice arrangements such as those in place with Expertech, Union Gas, Ontario Power Generation and Suncor. Aecon's effective backlog is therefore greater than what is reported here.

First Quarter Business Highlights

· Aecon Construction and Materials was awarded three contracts totalling $115 million for work on Highway 407 ETR, Highway 401 and for GO Transit.

· The Quito Airport concession is in full effect and the airport is now run to the financial benefit of the concessionaire.

· Aecon Cegerco strengthened its position in Quebec with a territorial expansion that includes Quebec City.

· Aecon Industrial was awarded three significant contracts for work at Ontario Power Generation plants and also secured three contracts in Alberta valued at approximately $40 million from Petro Canada, Canadian Natural Resources Limited and Jacobs Canada.

· Innovative Steam Technologies was awarded a $7 million contract to supply two Once Through Steam Generators for a combined cycle cogeneration power plant in Bronx, New York.

· Aecon issued 4,680,000 common shares in March and April resulting in net proceeds of $27.7 million to further strengthen its balance sheet.

Segmented Results

Aecon reports its results in three segments: Infrastructure, Buildings and Industrial.

Ø  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 and infrastructure development.

Financial Highlights

Three months ended March 31

 

 

 

 

 

 

 

 

 

 

 

 

 

$ millions

 

2006

 

2005

 

% Change

 

 

 

 

 

 

 

Revenues

$

62

$

58

 

7 %

Segment operating loss

 

(5.2)

 

(4.6)

 

13 %

Backlog – March 31

 

250

 

147

 

70 %

Revenues from the Infrastructure segment increased from $58 million in the first quarter of 2005 to $62 million this quarter, as revenue gains of $8 million from roadbuilding operations, $4 million from utilities operations and $3 million from heavy civil operations offset revenue declines of $12 million from the Quebec operations.

Despite the increase in revenues, operating results from the Infrastructure segment were $0.6 million behind the same quarter last year, primarily as a result of a claim settlement recorded in the first quarter of 2005 and the completion last year of construction work on the Cross Israel Highway.

Ø  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

 

2006

 

2005

 

% Change

 

 

 

 

 

 

 

Revenues

$

87

$

77

 

13 %

Segment operating profit (loss)

 

(0.5)

 

0.2

 

n/a

Backlog – March 31

 

234

 

373

 

(37) %

Revenues in the Buildings segment increased to $87 million in the quarter, a $10 million increase over the first quarter of 2005. Revenue increases totalling $9 million were recorded by the segment's Seattle and western Canada operations, while revenues climbed $2 million in the Greater Toronto Area. Partially offsetting these increases were small declines in revenues from the division's Ottawa operations and Montreal operations.

Operating results for the first quarter of 2006 declined $0.7 million compared to last year, largely due to a $0.8 million write down of an investment in a joint venture and reduced profit margins on some current projects in the Toronto area where pending change order settlements have not been finalized. Operating results are expected to improve through the balance of the year, as the impact of strategic efforts to improve the financial performance of these operations takes hold. Consistent with the increases in revenues, operating profits from the segment's Seattle and western Canada operations increased. Results from the segment's Montreal and Ottawa operations increased slightly.

Ø  Industrial

Industrial operations include all of Aecon's industrial manufacturing and construction activities from in-plant construction in the nuclear and cogeneration sectors to the fabrication of specialty pipe and modules for the oil and gas sector and the design and manufacture of Once Through Steam Generators.

Financial Highlights

Three months ended March 31

 

 

 

 

 

 

 

 

 

 

 

 

 

$ millions

 

2006

 

2005

 

% Change

 

 

 

 

 

 

 

Revenues

$

53

$

39

 

36 %

Segment operating profit (loss)

 

0.5

 

(2.4)

 

n/a

Backlog – March 31

 

173

 

71

 

145 %

Revenues in the Industrial segment increased by $14 million to $53 million, a 36% improvement over the same quarter in 2005. Revenues from the segment's western Canada operations jumped $17 million to $25 million on strong demand from oilsands projects, while revenues from industrial construction operations in Ontario increased $2 million from the same quarter last year. Revenues of $3 million from Innovative Steam Technologies (“IST”) were a $5 million decline from last year.

Quarterly operating profit of $0.5 million from the Industrial segment represented a $2.9 million improvement over the same quarter in 2005. Consistent with the increase in revenues noted above, operating profits from western Canada operations of $2.8 million were $3.5 million higher than last year. Despite the increase in revenues, industrial construction operations in Ontario fell $0.4 million due to delays in anticipated awards and customer delays on existing projects. IST recorded operating losses of $1.2 million, a $0.2 million increase over the same quarter last year.

Ø  Corporate and Other

Net Corporate expenses for the quarter were $3.2 million compared to $2.5 million in 2005.

Consolidated Results

The Consolidated Results for the first three months of 2005 and 2006 are available at the end of this News Release.

Balance Sheet Highlights

Balance Sheet Highlights

(thousands of dollars)

 

 

 

 

 

 

Mar. 31, 2006

 

Dec. 31, 2005

 

 

 

 

 

Cash, cash equivalents, restricted cash and restricted term deposits and marketable securities

$

51,604

$

49,820

Other current assets

 

252,098

 

292,595

Property, plant and equipment

 

55,421

 

56,116

Other long-term assets

 

109,606

 

105,891

Total Assets

 

468,729

 

504,422

 

 

 

 

 

Current liabilities

$

244,886

$

286,659

Long-term debt

 

16,638

 

35,671

Other long-term liabilities

 

76,057

 

75,764

Shareholders' equity

 

131,148

 

106,328

Total Liabilities and Shareholders' Equity

 

468,729

 

504,422

 Conference Call

A conference call has been scheduled for Monday, May 15, 2006 at 10:30 a.m. ET to discuss Aecon's First Quarter 2006 financial results. Participants should dial 416-620-2417 or 1-877-871-4101 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 12:30 p.m. at 1-800-558-5253 or 416-626-4100 until midnight, May 22, 2006. The pass code will be 21285300#.

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.

Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005

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

Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005

 

 

2006

 

2005

 

 

 

 

 

Revenues

$

200,575

$

172,872

 

 

 

 

 

Costs and expenses

 

194,198

 

167,770

 

 

 

 

 

Marketing, general and administrative expenses

 

13,009

 

12,714

 

 

 

 

 

Depreciation and amortization

 

1,840

 

1,766

 

 

 

 

 

Foreign exchange gains

 

(43)

 

(87)

 

 

 

 

 

Loss (gain) on sale of assets

 

3

 

(23)

 

 

 

 

 

Interest expensenet

 

2,375

 

1,736

 

 

 

 

 

 

 

211,382

 

183,876

 

 

 

 

 

Loss before income taxes and extraordinary item

 

(10,807)

 

(11,004)

 

 

 

 

 

Income taxes

 

 

 

 

Current

 

140

 

830

 

 

 

 

 

Loss before extraordinary item

 

(10,947)

 

(11,834)

 

 

 

 

 

Extraordinary gain, net of income taxes

 

-

 

3,444

 

 

 

 

 

Net loss for the period

$

(10,947)

$

(8,390)

 

 

 

 

 

Loss per share before extraordinary item

 

 

 

 

Basic

$

(0.36)

$

(0.40)

Diluted

$

(0.36)

$

(0.40)

 

 

 

 

 

Net loss per share

 

 

 

 

Basic

$

(0.36)

$

(0.29)

Diluted

$

(0.36)

$

(0.29)

 

 

 

 

 

Average number of shares outstanding

 

 

 

 

Basic

 

30,813,153

 

29,271,962

Diluted

 

34,058,469

 

33,141,231