Aecon reports revenue and profit growth in the second quarter of 2015

Toronto, Ontario – August 10, 2015: Aecon Group Inc. (TSX: ARE) today reported results for the second quarter of 2015 including a revenue increase of 13 per cent over the second quarter of last year and higher Adjusted EBITDA of $29.9 million as compared to $13.9 million in the same period of 2014.

“Aecon’s second quarter results represent revenue growth and margin progress leading to increases in Adjusted EBITDA, operating profit, and Adjusted Profit – contributing to a strong first half of the year and further validating our diversified strategic business model,” said Teri McKibbon, President and Chief Executive Officer, Aecon Group Inc. “We maintain a positive outlook for the second half of 2015 given our healthy backlog position, the substantial recurring revenue we have secured, and the solid margin profile for each of our segments.”

HIGHLIGHTS

• Revenue for the three and six months ended June 30, 2015 was higher by $78 million and $117 million compared to the same periods in 2014, due to higher volume across all three major operating segments.
• Adjusted EBITDA of $29.9 million (margin of 4.5 per cent) for the second quarter of 2015 increased from $13.9 million (margin of 2.4 per cent) in the second quarter of 2014. For the first half of 2015, Adjusted EBITDA was $36.4 million (margin of 3.1 per cent), compared to $17.0 million (margin of 1.6 per cent) in the first half of the prior year.
• Adjusted Profit of $12.2 million for the second quarter of 2015 was an improvement of $26.1 million compared to an Adjusted Loss of $13.9 million in the second quarter of 2014. For the six month period, an Adjusted Loss of $4.7 million improved by $33.8 million when compared to an Adjusted Loss of $38.5 million in the same period last year.
• Backlog of $2,589 million as at June 30, 2015, compared to $2,690 million as at June 30, 2014.
• As previously disclosed, Aecon signed agreements to sell its 45.5 per cent interest in the Quito International Airport concessionaire for US$232.6 million.
• Subsequent to quarter end, Aecon announced that the Crosslinx consortium had reached commercial and financial close on the $5.3 billion Eglinton Crosstown LRT project. Aecon’s 25 per cent share of the project will be included in third quarter backlog.

CONSOLIDATED FINANCIAL HIGHLIGHTS⁽¹⁾

 (1)    This press release presents certain non-GAAP and additional GAAP (GAAP refers to Canadian Generally Accepted Accounting Principles) financial measures to assist readers in understanding the Company's performance.  Non-GAAP financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with GAAP in the consolidated financial statements. Further details on non-GAAP and additional GAAP measures are included in the Company’s Management’s Discussion and Analysis and available through the System for Electronic Document Analysis and Retrieval at www.sedar.com.

(2)    “Operating profit (loss)” represents the profit (loss) from operations, before net financing expense, income taxes and non-controlling interests. 

(3)    “Adjusted profit (loss)” represents the profit (loss) adjusted to exclude the after-tax fair value gain (loss) on the embedded derivative portion of convertible debentures.

(4)    “Adjusted EBITDA” represents operating profit (loss) adjusted to exclude depreciation and amortization, the gain (loss) on sales of assets and investments, restructuring costs, gain (loss) on mark-to-mark adjustments related to the Company’s long term incentive plan (“LTIP”) program and net income (loss) from projects accounted for using the equity method, but including “JV EBITDA” from projects accounted for using the equity method.

(5)    “Adjusted earnings (loss) per share” represents earnings (loss) per share calculated using adjusted profit (loss).

(6)    Certain comparative amounts for 2014 have been reclassified to conform to the presentation adopted in the current year. For more information, refer to Note 29 of the Company’s June 30, 2015 interim condensed consolidated financial statements available through the System for Electronic Document Analysis and Retrieval at www.sedar.com.

OPERATING AND FINANCIAL RESULTS

“While construction markets linked to oil and commodity prices remain uncertain in the current environment, Aecon is well positioned at present in all three operating segments – with Aecon’s recognized capability to deliver large, complex multi-disciplinary infrastructure projects, solid demand for fabrication work along with growth in utilities recurring revenue secured in the Energy segment, and strong performance in Mining,” said Teri McKibbon. “The addition of Aecon’s 25 per cent interest in the previously announced Eglinton Crosstown LRT project to backlog in the third quarter further strengthens our outlook for the remainder of the year and into 2016.”

Revenue for the three and six months ended June 30, 2015 was higher by $78 million and $117 million, respectively, compared to the same periods in 2014. During both periods, revenue was higher across all three major operating segments. The largest increase occurred in the Mining segment, largely due to higher volume of site installation work in the commodity mining sector.

Operating profit of $19.8 million for the three months ended June 30, 2015 improved by $27.6 million compared to an operating loss of $7.8 million in the same period in 2014, while operating profit for the six months ended June 30, 2015 of $1.6 million improved by $32.6 million when compared to an operating loss of $31.0 million in the same period last year. The results for both the three and six months ended June 30, 2015 include a gain on the sale of Innovative Steam Technologies Inc. (IST) in the second quarter of $14.1 million.

Adjusted EBITDA of $29.9 million (margin of 4.5 per cent) in the second quarter of 2015 increased from $13.9 million (margin of 2.4 per cent) in the second quarter of 2014. For the six month period, Adjusted EBITDA was $36.4 million (margin of 3.1 per cent) in 2015 compared to $17.0 million (margin of 1.6 per cent) in 2014.

Backlog was $2,589 million as at June 30, 2015 as compared to $2,690 million as at June 30, 2014.

New contract awards of $469 million were booked in the second quarter of 2015 compared to $1,101 million in the second quarter of 2014. New contract awards of $1,104 million were booked in the first six months of 2015 compared to $1,969 million in the same period in 2014.

Not included in backlog, but important to Aecon’s prospects due to the significant volume involved, is the expected recurring revenue from Aecon’s alliances and supplier-of-choice arrangements where the amount and/or value of work to be carried out is not specified.

REPORTING SEGMENTS

Aecon reports its financial performance on the basis of four segments: Infrastructure, Energy, Mining, and Concessions.

INFRASTRUCTURE SEGMENT

The Infrastructure segment includes all aspects of the construction of both public and private infrastructure, primarily in Canada, and on a selected basis, internationally. The Infrastructure segment focuses primarily on the transportation, heavy civil, water and wastewater treatment and social infrastructure markets.

(1) Certain comparative amounts for 2014 have been reclassified to conform to the presentation adopted in the current year.

Revenue in the Infrastructure segment of $224 million in the second quarter of 2015 was $33 million, or 17 per cent, higher than the same period last year. The largest increase occurred in transportation operations due to a higher volume of road building work in Ontario and Western Canada. Revenue was also higher in heavy civil operations due to the ramp up of work from project awards received in 2014 in the heavy civil transportation sector in Ontario and in the power sector in Western Canada that were in the initial stages of commencement in the second quarter of 2014.

Operating profit in the Infrastructure segment of $3.7 million improved by $12.6 million compared to an operating loss of $8.9 million in the same period in 2014. The majority of the quarter-over-quarter improvement occurred in transportation operations due to higher volume and higher gross profit margin from work executed and increased equipment utilization. Operating profit also increased in social infrastructure operations despite lower revenues due primarily to higher gross profit margin from mechanical work in the water and wastewater treatment sector that more than offset the reduction in operating profit from lower margin buildings work. To a lesser extent, operating profit also increased in heavy civil operations during the quarter due largely to lower bid costs.

Backlog in the Infrastructure segment was $1,295 million, which is $190 million lower than the same time last year. The largest year-over-year decrease in backlog occurred in social infrastructure operations due mainly to lower backlog in buildings operations. Backlog was also lower in heavy civil operations due to the work off of projects over the past twelve months. Partially offsetting these decreases in backlog was higher backlog in transportation operations due largely to the impact of several large project awards received in the second half of 2014. New contract awards totalled $190 million in the second quarter of 2015 and $374 million year-to-date, compared to $400 million and $963 million, respectively, in the prior year.

ENERGY SEGMENT

The Energy segment encompasses a full suite of service offerings to the energy market including industrial construction and manufacturing activities such as in-plant construction, site construction and fabrication and module assembly. The Energy segment focuses primarily on the following sectors: power generation, oil and gas, pipelines, utilities, and energy support services. Historically, the oil sector has contributed approximately 15 to 20 per cent of Aecon’s total revenue.

(1) Certain comparative amounts for 2014 have been reclassified to conform to the presentation adopted in the current year.

On April 10, 2015, Aecon sold its wholly owned subsidiary IST to Fulcrum Capital Partners. Gross cash proceeds of the sale were $35 million, with potential additional proceeds over the following two years contingent on IST achieving certain earn-out conditions based on performance. For both the three and six months ended June 30, 2015, a gain of $14.1 million was included in operating profit. IST designs, engineers, manufactures and installs Once Through Steam Generators (“OTSGs”) for the power generation and enhanced oil recovery industries. The financial results of IST are reported in the Energy segment.

Revenue in the second quarter of 2015 of $299 million in the Energy segment was $5 million, or 2 per cent, higher than in the same period in 2014 with higher revenue in industrial operations largely offset by lower revenue in utilities operations. In industrial operations, revenue was higher in Western Canada primarily as a result of several significant fabrication and module assembly awards in the resources sector and higher site construction volume in the resources and power generation sectors. Industrial revenue also increased in Central Canada mainly from additional work in the power and gas distribution sectors. However, revenue in industrial operations was negatively impacted by the sale of IST during the second quarter of 2015. The reduction in revenue from utilities operations was due to lower volume from pipeline projects in Western Canada.

Operating profit in the Energy segment of $18.7 million increased by $3.9 million when compared to the same period last year. The increase in operating profit was due to a $14.1 million gain on the sale of IST reported in industrial operations, partially offset by lower operating profit from IST period-over-period as a result of the sale. Excluding the impact of IST, overall operating profit in industrial operations increased, primarily due to higher volume in Central and Western Canada. The higher operating profit in industrial was offset by a decrease in operating profit in utilities operations, which was primarily volume driven.

Backlog in the Energy segment was $812 million, which is $126 million lower than the same time last year, with reductions in both utilities and industrial operations. Backlog was lower in utilities operations primarily in Western Canada due to work off of pipeline projects. Excluding the reduction in backlog attributed to the sale of IST, backlog in industrial operations was relatively unchanged year-over-year as higher backlog in Western Canada from both fabrication and site construction projects was offset by a decrease in Central Canada and in Atlantic Canada. New contract awards of $118 million in the second quarter of 2015 were $293 million lower than in the same period in 2014, and new awards of $406 million for the first six months of 2015 were $198 million lower than in the same period in 2014.

MINING SEGMENT

The Mining segment offers turn-key services consolidating Aecon’s mining capabilities and services across Canada, including both mine site installations and contract mining. This segment offers construction services that span the scope of a project’s life cycle: from overburden removal and resource extraction, to processing and environmental reclamation.

(1) Certain comparative amounts for 2014 have been reclassified to conform to the presentation adopted in the current year.

Revenue of $148 million in the Mining segment for the three months ended June 30, 2015 was $41 million, or 38 per cent, higher than in the same period in 2014. The majority of the increase was due to a higher volume of site installation work in the commodity mining sector largely from potash projects. Revenue from contract mining operations was also higher due to continued site development work related to a 2014 award at the Fort Hills project in Alberta. Revenue from civil and foundations work related to mining projects in the second quarter of 2015 was lower compared to the same period in 2014 due primarily to lower volume in Western Canada.

Operating profit in the Mining segment in the second quarter of 2015 of $4.4 million improved by $14.0 million when compared to an operating loss of $9.6 million in the same period in 2014. Operating profit improved in all three sectors within the Mining segment in the second quarter. Operating profit in the commodity mining sector increased when compared to the same period last year due to higher volume and higher gross profit margin, and operating profit in contract mining operations increased due to higher gross profit margin as a result of a more favourable mix of work and better site conditions for unit rate reclamation work when compared to the same period in 2014. In civil and foundations work, operating profit increased due to higher gross profit margin from ongoing projects, which more than offset lower income from projects reported under the equity method.

Backlog in the Mining segment of $482 million was $215 million higher than the same time last year. Backlog increased in the commodity mining sector primarily due to project awards for site installation work related to potash projects and in civil and foundations operations from awards in the resources sector in Eastern Canada. These increases were partially offset by a decrease in backlog in contract mining operations largely due to work completed on the Fort Hills project in Alberta. New contract awards of $164 million in the second quarter of 2015 were $130 million lower than in the same period in 2014, and new awards of $331 million for the first six months of 2015 were $73 million lower than in the same period in 2014.

CONCESSIONS SEGMENT

The Concessions segment includes the development, financing, design, construction and operation of infrastructure projects by way of build-operate-transfer, build-own-operate-transfer and other public-private partnership contract structures.

Aecon entered into an agreement on June 8, 2015 to sell its 45.5 per cent share in the Quito airport concession operations for US$232.6 million. Closing of the transaction remains subject to formal third party approvals including anti-trust and lender approvals. As the investment in Quiport is expected to be recovered through this sale transaction, this investment is presented, on a prospective basis, as an asset “held for sale” on the consolidated balance sheet as at June 30, 2015. In addition, equity accounting ceased from the point the joint venture was classified as held for sale. Therefore, results from the Quito airport concessionaire subsequent to June 8, 2015 have not been reported within the Concessions segment, thereby impacting the segment's results for the three-month period ended June 30, 2015 when compared to the same period in the prior year.

Revenue reported in the Concessions segment for the three months ended June 30, 2015 and 2014, was $0.7 million and $0.8 million, respectively.

For the three months ended June 30, 2015, operating profit of $3.6 million decreased by $1.5 million when compared to the same period last year. The decline is due to a reduced contribution from the Quito airport concessionaire for the reasons cited above, and higher professional fees and higher bid costs related to submitted and ongoing bids.

OUTLOOK

“It is evident that both federal and provincial governments have tended to increase infrastructure investment during slow economic growth, and Aecon is strategically primed to respond to such large-scale infrastructure opportunities,” said Teri McKibbon.

CONSOLIDATED RESULTS

The consolidated results for the three and six months ended June 30, 2015 and 2014 are available at the end of this news release.

CONFERENCE CALL

A conference call has been scheduled for Tuesday, August 11, 2015 at 10 a.m. (ET) to discuss Aecon’s second quarter 2015 financial results.  Participants should dial 416-981-9095 or 1-800-681-8603 at least 10 minutes prior to the conference time.  For those unable to attend the call, a replay will be available after 12 p.m. at 1-800-558-5253 or 416-626-4100 until midnight on August 18, 2015. The reservation number is 21770829.

ABOUT AECON

Aecon Group Inc. is a Canadian leader in construction and infrastructure development providing integrated turnkey services to private and public sector clients.  Aecon is pleased to be consistently recognized as one of the Best Employers in Canada.