Aecon reports record third quarter and nine month earnings



    
    -   Revenues up 36% to $430 million in the quarter
    -   Operating Profit up 35% to $20.3 million in the quarter
    -   New highs set with net income of $19.0 million in the quarter and
        $25.8 million year-to-date
    -   Record Backlog of $1.27 billion
    -   Outlook remains strong
    -   Semi-annual dividend of $0.07 per share approved by Board
    

    TORONTO, Oct. 29 /CNW/ - Aecon Group Inc. (TSX: ARE) today reported
improved operating results for the third quarter and first nine months of 2007
as revenues, gross margin, operating profit and net income all improved over
those reported a year earlier.
    The improved results continue a trend that has emerged over the past
several quarters of significant year-over-year earnings growth, reflecting the
strong market conditions in Aecon's key sectors and reinforcing the success of
Aecon's strategic path.

    
    Revenue, Operating Results and Net Income
    -----------------------------------------

                                     Three Months Ended    Nine Months Ended
                                        September 30          September 30
                                 --------------------------------------------
    $ millions                         2007       2006       2007       2006
                                       ----       ----       ----       ----

    Revenues                      $     430  $     316  $   1,010  $     775
    Gross margin                       42.7       32.9       93.9       56.9
    Operating profit                   20.3       15.0       34.6        8.4
    Interest expense                   (3.0)      (2.2)      (8.4)      (7.3)
    Income tax (expense) recovery       1.8          -          -       (0.2)
    Net income for the period          19.0       12.8       25.8        0.9
                                                       ----------------------
                                                       ----------------------
    Backlog - September 30        $   1,272  $     838
                                 ----------------------
                                 ----------------------
    

    Revenues in the third quarter of 2007 grew to $430 million, an increase
of 36% over the same period last year, reflecting revenue growth in all four
segments of Aecon's business. Revenues in the first nine months of the year
increased by 30% to $1.010 billion.
    Gross margin (revenues less direct costs and expenses) increased by 30%
in the quarter to $42.7 million. Gross margin as a percentage of revenues
decreased from 10.4% last year to 9.9% this year primarily as a result of risk
reserves taken on a few previously completed projects. Absent the risk
reserves, gross margin percentages in the quarter increased compared to the
same period last year. Gross margins over the first nine months were 9.3% of
revenues, up from 7.3% in 2006.
    Operating profit (income from operations before interest expense, income
taxes and non-controlling interests) grew to $20.3 million in the quarter, a
35% improvement over the third quarter of 2006, as all four segments showed
improved profitability in the quarter. Operating profits in the first
nine months totalled $34.6 million, up from $8.4 million last year.
    Net income reached $19.0 million ($0.51 per share basic/$0.44 diluted) in
the quarter, a 48% increase from the $12.8 million ($0.35 per share
basic/$0.34 diluted) reported in 2006, making it the most profitable quarter
in Aecon's history. This increase brought net income for the first nine months
to a record high of $25.8 million ($0.70 per share basic/$0.66 diluted),
compared to $0.9 million ($0.03 per share basic and diluted) last year. Net
income for the 12 months ended September 30, 2007 was a record $36.4 million
($0.99 per share basic/$0.92 diluted) on revenue of $1.35 billion.
    Marketing, general and administrative expenses amounted to $16.9 million
in the quarter and $47.3 million in the first nine months of 2007,
representing increases of $3.6 million and $7.3 million compared to the same
periods last year. The increases are due largely to higher volumes, the
expansion of operations in Western Canada, higher information technology costs
and higher performance-related incentive costs. Notably, while the aggregate
dollar amount increased, MG&A as a percentage of revenues fell to 4.7% in the
first nine months of the year from 5.2% last year.

    Dividend Policy
    ---------------
    In conjunction with the release of its third quarter results, Aecon
announced that its board of directors has approved a policy to commence
semi-annual dividend payments in the amount of $0.07 per share ($0.14
annually) to holders of Aecon Common Shares. The first dividend payment will
be paid on January 2, 2008 to shareholders of record on November 30, 2007.
    "The earnings and operating cash flow performance demonstrated in recent
quarters is indicative of the strong position Aecon has achieved in segments
of the Canadian construction industry experiencing substantial and durable
growth," noted John M. Beck, Chairman and CEO, Aecon Group Inc. "On the basis
of this strength, the board has determined that Aecon is now in a position,
not only to continue to invest in significant growth, but also to adopt a
modest semi-annual dividend that will provide an additional return to our
shareholders."

    Outlook
    -------
    "Most of the trends that have driven Aecon's strong performance over the
past year remain in place, and although we will likely be required to begin
tax effecting earnings once again in 2008, I continue to believe that our
healthy backlog and the ongoing strength of our core markets bode well for
continued pre-tax earnings growth," said Scott Balfour, President and CFO,
Aecon Group Inc. "The strong revenues, continued margin improvement and
significant backlog growth we've seen in recent quarters all serve to
reinforce our commitment to our strategic path."

    Backlog and New Business Awards
    -------------------------------
    Backlog at September 30, 2007 reached a record $1.272 billion. Increases
in the Buildings and Industrial segments drove backlog growth of $434 million
or 52% compared to the same time last year, and $64 million or 5% higher than
at the beginning of the 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. Therefore, Aecon's effective backlog at any given
time is greater than what is reported.
    New contract awards of $495 million in the quarter brought total new
contract awards in the first nine months of the year to $1.497 billion, a 44%
increase over the $1.036 billion reported in the first nine months of 2006.

    Third Quarter Business Highlights
    ---------------------------------
    
    -   Aecon's performance in the quarter established a number of new third
        quarter and nine month high water marks, including record revenues,
        record earnings, and record backlog.

    -   During the quarter, Derech Eretz, the company that owns the
        concession rights for the Cross Israel Highway, redeemed a portion of
        its subordinated debt of which Aecon's share was approximately
        US$10 million. For accounting purposes, this repayment was treated as
        a return of capital and, as such, had no impact on Aecon's earnings.
        The carrying value of Aecon's investment in Derech Eretz is now
        approximately $32.7 million, while its ownership interest remains at
        25%.

    -   Average weekday traffic on the Cross Israel Highway in September 2007
        averaged more than 93,000, an increase of over 16% since September of
        last year.

    -   A total of over 1.1 million passengers passed through the existing
        Quito International Airport in the third quarter of 2007, a 9%
        increase from the same period last year.

    -   Quito Airport construction is proceeding well. Pursuant to Aecon's
        accounting policy, profit from construction will be recognized only
        once construction progress reaches a stage sufficient to reasonably
        determine the probable results. Based on this policy, construction
        profit is expected to be recognized beginning in the fourth quarter
        of 2007 or the first quarter of 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             Three Months Ended    Nine Months Ended
    ($ millions)                        September 30          September 30
                                  --------------------- ---------------------
                                       2007       2006       2007       2006
                                       ----       ----       ----       ----

    Revenues                      $     225  $     173  $     482  $     338

    Segment operating profit           12.0       11.8       18.6        9.3
                                  --------------------- ---------------------
    Return on revenue                  5.3%       6.8%       3.9%       2.8%
                                                        ---------------------
                                                        ---------------------
    Backlog - September 30        $     435  $     465
                                  ---------------------
                                  ---------------------


    Revenues in the Infrastructure segment increased to $225 million in the
quarter from $173 million in the same period of 2006. The $52 million increase
can be attributed largely to Aecon's acquisition of The Karson Group earlier
this year, growing volumes of civil work in Alberta, improved utilities
operations in Ontario, and more heavy civil construction work in Ontario.
    Segment operating profit of $12.0 million in the quarter represented a
$0.2 million increase over the third quarter of 2006, with improvements
generated by heavy civil and utilities operations in Ontario, civil
construction in Alberta, and The Karson Group, largely offset by risk reserves
taken on a few previously completed projects.
    Backlog at the end of September 2007 was $435 million, a $30 million
decrease since the same time last year. The decline is largely due to a
$27 million drop in backlog associated with the Quito airport project. New
contract awards of $497 million year-to-date represent a decline from
$683 million in the first nine months of 2006, also primarily related to the
award last year of the Quito airport construction project.

    -   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    Nine Months Ended
    ($ millions)                        September 30          September 30
                                  --------------------- ---------------------
                                       2007       2006       2007       2006
                                       ----       ----       ----       ----

    Revenues                      $     113  $      71  $     255  $     239

    Segment operating profit            2.4        1.3        1.2        2.0
                                  --------------------- ---------------------
    Return on revenue                  2.1%       1.9%       0.5%       0.8%
                                                        ---------------------
                                                        ---------------------
    Backlog - September 30        $     446  $     191
                                  ---------------------
                                  ---------------------


    Third quarter revenues in the Buildings segment of $113 million were
$42 million higher than in the same quarter last year. While the increase was
spread across most operating units, the largest increase came from the
segment's operations in Ottawa where two large project awards in 2006 came
into full production in 2007.
    Segment operating profit in the quarter was $2.4 million, a $1.1 million
increase over last year. With the exception of Toronto operations, all
operating units reported improved operating profits as compared to the same
quarter of 2006.
    Notably, backlog of $446 million is $255 million higher than at the same
time last year due to $510 million in new project awards so far this year. The
strengthening of segment backlog, currently at its highest levels in over five
years, is a positive trend that signals a more positive medium term outlook
for the Buildings segment.

    -   Industrial

    Industrial operations include all of Aecon's industrial manufacturing and
construction activities including industrial 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    Nine Months Ended
    ($ millions)                        September 30          September 30
                                  --------------------- ---------------------
                                       2007       2006       2007       2006
                                       ----       ----       ----       ----

    Revenues                      $      86  $      65  $     253  $     185

    Segment operating profit            7.7        4.4       17.7        6.9
                                  --------------------- ---------------------
    Return on revenue                  9.0%       6.8%       7.0%       3.7%
                                                        ---------------------
                                                        ---------------------
    Backlog - September 30        $     391  $     182
                                  ---------------------
                                  ---------------------


    Industrial segment revenues totalled $86 million in the quarter, a
$21 million increase over the third quarter of 2006. While all business units
within this segment reported quarter-over-quarter revenue increases, the
segment's construction operations in Ontario and its IST unit in Cambridge
were responsible for most of the increase.
    Segment operating profit of $7.7 million in the quarter represents a
$3.3 million improvement over the same quarter last year. The segment's
construction operations in Ontario, Western Canada operations and IST were
largely responsible for the increase, with profits from fabrication operations
in Ontario and Eastern Canada essentially unchanged from a year ago.
    Backlog of $391 million in the Industrial segment at September 30, 2007,
is more than double the $182 million recorded at the same time last year, with
strong gains in Ontario construction, Western Canada operations and IST
providing most of the increase. New contract awards of $457 million in the
first nine months of the year were $262 million higher than in the same period
of 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 Highway and Quito International
Airport concession companies.


    Financial Highlights             Three Months Ended    Nine Months Ended
    ($ millions)                        September 30          September 30
                                  --------------------- ---------------------
                                       2007       2006       2007       2006
                                       ----       ----       ----       ----

    Revenues                      $      15  $      12  $      42  $      23

    Segment operating profit
     (loss)                             1.2       (0.4)       3.8       (2.3)
                                  --------------------- ---------------------
    Return on revenue             $    7.7%  $   (3.3%)      8.9%    (10.1)%
                                  --------------------- ---------------------
                                  --------------------- ---------------------


    Revenues in the Concessions segment were $15 million in the quarter, a
$3 million increase compared to the same quarter of 2006. Most of the revenue
increase arose from operations at the existing Quito airport.
    The segment operating profit of $1.2 million was an improvement of
$1.6 million compared to the same quarter last year. The increase in operating
profit was, similar to the increase in revenues, largely due to contributions
from operations at the existing Quito airport.
    Aecon's long-term investment in the Cross Israel Highway concession is
carried at cost and, as a result, income is only recognized to the extent of
dividends received or when a portion of this investment is sold. As such, even
though the Cross Israel Highway is performing well, and is generating strong
operating cash flow, Aecon has not reported any revenues or profits from this
investment.

    -   Corporate and Other

    Net Corporate expenses (before interest income and corporate allocations
to the segments) were $4.4 million in the quarter compared to $2.6 million in
2006, due primarily to the impact of performance-related incentive costs.

    Consolidated Results

    The Consolidated Results for the three months and nine months ended
September 30, 2007 and 2006 are available at the end of this News Release.


    Balance Sheet Highlights

    -------------------------------------------------------------------------
    (thousands of dollars)                     Sept. 30, 2007  Dec. 31, 2006
                                               --------------  -------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Cash, cash equivalents, restricted cash
     and restricted term deposits and
     marketable securities                        $   115,285    $    78,528
    -------------------------------------------------------------------------
    Other current assets                              429,800        372,839
    -------------------------------------------------------------------------
    Property, plant and equipment                      82,631         53,348
    -------------------------------------------------------------------------
    Other long-term assets                            192,609        211,572
    -------------------------------------------------------------------------
    Total Assets                                      820,325        716,287
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Current liabilities                           $   384,627    $   330,167
    -------------------------------------------------------------------------
    Long-term debt                                    117,585         81,120
    -------------------------------------------------------------------------
    Other long-term liabilities                       140,782        151,397
    -------------------------------------------------------------------------
    Shareholders' equity                              177,331        153,603
    -------------------------------------------------------------------------
    Total Liabilities and Shareholders' Equity        820,325        716,287
    -------------------------------------------------------------------------


    Summary of Cash Flows

                                       Consolidated
                                        Cash Flows
                                  ----------------------
                                     Nine Months Ended
                                        September 30
    $ millions                         2007       2006
                                      ------     ------
    Cash provided by (used in):

    Operating activities          $    47.6  $   (38.6)

    Investing activities              (35.3)      (8.6)

    Financing activities               22.5       57.1
                                  ---------------------
    Increase (decrease) in cash
     and cash equivalents              34.8        9.9
                                  ---------------------
    

    Conference Call

    A conference call has been scheduled for Tuesday, October 30, 2007 at
10:00 a.m. ET to discuss Aecon's third quarter and first nine months financial
results. Participants should dial 416-620-2415 or 1-800-215-0816 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, November 8, 2007.
The pass code is 21353331 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.

    The information in this news release includes certain forward-looking
statements. Forward-looking statements are based on estimates and assumptions
derived from past experience and interpretation of historical trends, current
conditions and expected future developments. Many factors could cause Aecon's
actual results, performance or achievements to vary from those expressed or
inferred by these statements. Risk factors are discussed in greater detail in
the Section entitled "Risk Factors and Uncertainties" in Management's
Discussion and Analysis of operating results and Financial condition for the
year ended December 31, 2006, filed 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
    Sept. 30, 2007 and 2006
    (in thousands of dollars, except per share amounts) (unaudited)

                                                       2007          2006
                                                  ------------- -------------

    Revenues                                       $   430,371   $   316,039

    Costs and expenses                                (387,657)     (283,123)
                                                  ------------- -------------

                                                        42,714        32,916
                                                  ------------- -------------

    Marketing, general and administrative
     expenses                                          (16,861)      (13,237)

    Foreign exchange (losses) gains                     (1,016)           32

    Gain on sale of assets                                 193            54

    Depreciation and amortization                       (6,149)       (5,253)

    Interest expense                                    (2,953)       (2,234)

    Interest income                                      1,453           528
                                                  ------------- -------------

                                                       (25,333)      (20,110)
                                                  ------------- -------------

    Income before income taxes and
     non-controlling interests                          17,381        12,806
                                                  ------------- -------------

    Income tax (expense) recovery
    Current                                              2,064          (512)
    Future                                                (263)          534
                                                  ------------- -------------

                                                         1,801            22
                                                  ------------- -------------

    Income before non-controlling interests             19,182        12,828

    Non-controlling interests                             (147)            -
                                                  ------------- -------------

    Net income for the period                      $    19,035   $    12,828
                                                  ------------- -------------
                                                  ------------- -------------

    Net earnings per share
    Basic                                          $      0.51   $      0.35
    Diluted                                        $      0.44   $      0.34

    Average number of shares outstanding
    Basic                                           37,120,401    36,698,212
    Diluted                                         47,021,102    38,109,577



    Consolidated Statements of Operations for the nine months ended
    Sept. 30, 2007 and 2006
    (in thousands of dollars, except per share amounts) (unaudited)

                                                       2007          2006
                                                  ------------- -------------

    Revenues                                       $ 1,010,427   $   775,353

    Costs and expenses                                (916,499)     (718,470)
                                                  ------------- -------------

                                                        93,928        56,883
                                                  ------------- -------------

    Marketing, general and administrative
     expenses                                          (47,316)      (40,048)

    Foreign exchange losses                             (1,577)         (962)

    Gain on sale of assets                               3,580           131

    Depreciation and amortization                      (17,340)       (9,049)

    Interest expense                                    (8,390)       (7,319)

    Interest Income                                      3,312         1,433
                                                  ------------- -------------

                                                       (67,731)      (55,814)
                                                  ------------- -------------

    Income before income taxes and
     non-controlling interests                          26,197         1,069
                                                  ------------- -------------

    Income tax (expense) recovery
    Current                                               (892)         (710)
    Future                                                 886           534
                                                  ------------- -------------

                                                            (6)         (176)
                                                  ------------- -------------

    Income before non-controlling interests             26,191           893

    Non-controlling interests                             (399)            -
                                                  ------------- -------------

    Net income for the period                      $    25,792   $       893
                                                  ------------- -------------
                                                  ------------- -------------

    Net earnings per share
    Basic                                          $      0.70   $      0.03
    Diluted                                        $      0.66   $      0.03

    Average number of shares outstanding
    Basic                                           36,897,608    34,746,874
    Diluted                                         46,699,238    36,756,512

    

    %SEDAR: 00004778EF




For further information:

For further information: Mitch Patten, Vice President, Corporate
Affairs, Aecon Group Inc., (416) 293-7004, aecon@aecon.com, www.aecon.com


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