Aecon reports continued improvement in first quarter

• Revenues up $41 million to $242 million
• Gross Margins up $12.5 million to $18.9 million
• Operating profit of $0.1 million – an $8.2 million improvement
• Net loss of $3 million – an $8 million improvement
• Net income of $19.5 million over trailing 12 months – up $8.0 million from fiscal 2006
• Backlog up 27% to $837 million
• Outlook remains strong

 

Toronto, Ontario – May 14, 2007: Aecon Group Inc. (TSX: ARE) today reported improved operating results for the first quarter of 2007 as revenues, margins, operating profit and net loss all improved over those reported a year earlier.

 

Revenue, Operating Results and Net Income

Revenues in the first quarter of 2007 totalled $242 million, an increase of more than 20% from the $201 million reported a year ago, as increases in the Infrastructure, Industrial and Concessions segments offset a decline in the Buildings segment.

 

Gross margins (revenues less direct costs and expenses) increased by $12.5 million, bringing gross margins as a percentage of revenues to 7.8% this quarter, up from 3.2% in 2006, benefiting from both improved contract margins and the impact of improved revenues during Aecon's traditionally softest quarter.

 

Operating profit (income from operations before interest expense, income taxes and non-controlling interests) of $0.1 million represents an $8.2 million improvement over the first quarter of 2006, as all four segments showed improvement in the quarter.

 

Net loss in the quarter improved to $3.0 million ($0.08 per share) from $10.9 million ($0.36 per share in 2006), bringing net income over the trailing 12 months to $19.5 million, an $8.0 million improvement from the net income reported in fiscal 2006.

Marketing, general and administrative expenses amounted to $15.0 million in the quarter, a $2.0 million increase from last year, due largely to higher volumes, the expansion of operations in Western Canada and higher performance-related incentive costs. Notably, while the aggregate dollar amount increased, MG&A as a percentage of revenues decreased from 6.5% in the first quarter of 2006 to 6.2% this year.

 

Depreciation and amortization expense of $4.9 million is $3.0 million higher than last year as a result of the amortization of concession rights related to the existing Quito airport.

 

Outlook

“Aecon's first quarter results build on the significant progress we achieved in 2006 and support our outlook for 2007,” said John M. Beck, Chairman and CEO, Aecon Group Inc. “I continue to believe that Aecon's healthy backlog and the ongoing strength of our core markets bode well for continued improvement in 2007 and the achievement of our EPS objective of $0.75 in 2008.”

 

“The first quarter of 2007 was characterized by strong revenues and continued margin improvement,” said Scott Balfour, President and CFO, Aecon Group Inc. “These results reinforce that the focused strategy we adopted in late 2005 has us on the right path. It is a strategy we will continue to drive.”

 

Backlog and New Business Awards

 

Backlog at March 31, 2007, was $837 million, or $180 million higher than at the same time last year, as backlog increases in the Infrastructure and Industrial segments more than offset a decline in the Buildings segment. 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 of $292 million in the first quarter were $12 million higher than in 2006.

 

First Quarter Business Highlights

 

· On February 1, 2007, Aecon announced the acquisition of The Karson Group, one of the largest aggregate, asphalt and civil construction companies in Eastern Ontario. The $42 million cash and debt deal makes Aecon one of the five largest aggregate producers in Ontario, with over 350 million tonnes of aggregate reserves, and it significantly strengthens operations in Eastern Ontario.

· Average week day traffic on the Cross Israel Highway in March 2007 reached 86,000, a higher than forecast 17.9% increase over March 2006.

 

· In total, 950,000 passengers passed through the existing Quito International Airport in the first quarter of 2007, a higher than forecast 10.6% increase from the first quarter of 2006.

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		2007		2006
Revenues	$	95	$	56
Segment operating loss		(2.0)		(4.5)
Return on revenue		(2.1)%		(8.0)%
Backlog – March 31		442		250

(1) Certain prior period comparative figures have been reclassified to conform to the new segment definitions currently being used.

 

Revenues in the Infrastructure segment increased to $95 million in the first quarter of 2007 from $56 million in the same period of 2006. The $39 million increase can be partly attributed to favourable weather conditions in the early part of the quarter, a higher amount of winter work, as well as Aecon's acquisition of The Karson Group during the quarter.

 

The segment's operating loss of $2 million represents a $2.5 million improvement over the same quarter of 2006 and stems from the segment's growing revenues and improved margins.

 

Backlog at the end of the quarter was $442 million, a $192 million increase from the same time last year. New contract awards of $124 million were received in the quarter, which compares with $189 million 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 Ended March 31
$ millions		2007		2006
Value of work managed	$	112	$	167
Revenues		63		87
Segment operating loss	$	(0.2)		(0.5)
Return on revenue		(0.4)%		(0.6)%
Backlog – March 31		170		234

 

First quarter revenues in the Buildings segment were $63 million, representing a $24 million decline from 2006 due largely to a decrease in revenues from operations in the Greater Toronto Area.

 

Segment operating losses of $0.2 million in the quarter were $0.3 million better than last year, in large part due to the impact of the 2006 write-down of a joint venture investment. 

Backlog of $170 million was $64 million lower than at the same time last year. New contract awards of $42 million in the quarter represent an increase of $9 million, due primarily to awards in the Greater Toronto Area, and reflect a positive trend that is expected to continue in coming quarters.

 

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 Steam Generators.

Financial Highlights
		Three Months Ended March 31
$ millions		2007		2006
Revenues	$	74	$	53
Segment operating profit		3.0		0.5
Return on revenue		4.0%		0.9%
Backlog – March 31		225		173

 

Results from the Industrial segment continued to improve. First quarter revenue of $74 million is a $21 million increase over the same quarter of 2006, reflecting revenue increases in all operating units within the segment. 

The Industrial segment generated an operating profit of $3.0 million, compared to $0.5 million in the first quarter last year. The improvement reflects the increased revenues generated as well as improved margins in most business units.

 

Segment backlog of $225 million at the end of the quarter is $52 million higher than at the same time last year. Notably, Innovative Steam Technologies' backlog of $41 million is up significantly, which bodes well for improved results in 2007. New contract awards of $114 million in the quarter were $59 million higher than in 2006.

 

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  (1)	Three Months Ended March 31
$ millions		2007		2006
Revenues	$	14	$	6
Segment operating profit (loss)		1.4		(0.7)
Return on revenue		10.0%		(12.4)%

(1) Certain prior period comparative figures have been reclassified to conform to the new segment definitions currently being used.

 

Revenues in the Concessions segment were $14 million in the current quarter, an $8 million increase compared to 2006. The majority of the revenue improvement arose from the Quito airport project, which reported no revenues in the first quarter of 2006 and $8 million this year.

 

The segment operating profit of $1.4 million was an improvement of $2.1 million compared to the same quarter last year, largely due to contributions from operations of the existing Quito Airport.

Corporate and Other

Net Corporate expenses (before interest income and corporate allocations to the segments) were $3.1 million in the quarter compared to $3.2 million in 2006.

 

Consolidated Results

 

The Consolidated Results for the first quarters of 2007 and 2006 are available at the end of this News Release.

Balance Sheet Highlights

Balance Sheet Highlights
(thousands of dollars)		March 31, 2007		Dec. 31, 2006
Cash, cash equivalents, restricted cash and restricted term deposits and marketable securities	$	81,554	$	78,528
Other current assets		348,167		372,839
Property, plant and equipment		84,154		53,348
Other long-term assets		209,548		211,572
Total Assets		723,423		716,287
Current liabilities	$	314,125	$	330,167
Long-term debt		108,309		81,120
Other long-term liabilities		149,171		151,397
Shareholders' equity		151,518		153,603
Total Liabilities and Shareholders' Equity		723,423		716,287

 

 

Summary of Cash Flows

		Consolidated Cash Flows				Cash Flows Excluding Quiport JV
		Three Months Ended Mar. 31				Three Months Ended Mar. 31
$ millions		2007		2006		2007		2006
Cash provided by (used in):
Operating activities before changes in other balances relating to operations	$	2.1	$	(8.3)	$	(2.6)	$	(8.3)
Changes in other balances relating to operations		13.2		10.0		14.8		10.0
Investing activities		(24.2)		(2.6)		(20.9)		(2.6)
Financing activities		6.6		2.6		6.6		2.6
Increase (decrease) in cash and cash equivalents		(2.3)		1.7		(2.1)		1.7

 

 

 

Conference Call

 

A conference call has been scheduled for Tuesday, May 15, 2007 at 10:30 a.m. ET to discuss Aecon's 2007 first quarter financial results. Participants should dial 416-620-2400 or 1-877-871-4106 at least 10 minutes prior to the conference time.

 

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 24, 2007. The pass code is 21338294 followed by the number sign.

 

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, 2007 and 2006

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

 

Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006
		2007		2006
Revenues	$	241,785	$	200,575
Costs and expenses		222,876		194,198
		18,909		6,377
Marketing, general and administrative expenses		14,960		13,009
Foreign exchange losses (gains)		135		(43)
Loss on sale of assets		12		3
Depreciation and amortization		4,855		1,840
Interest expense, net		1,196		2,375
		21,158		17,184
Loss before income taxes and controlling interests		(2,249)		(10,807)
Income tax expense (recovery)
Current		1,081		140
Future		(512)		-
		569		140
Loss before non-controlling interests		(2,818)		(10,947)
Non-controlling interests		156		-
Net loss for the period	$	(2,974)	$	(10,947)
Net loss per share
Basic	$	(0.08)	$	(0.36)
Diluted	$	(0.08)	$	(0.36)
Average number of shares outstanding
Basic		36,534,448		30,813,153
Diluted		46,076,404		34,058,469