Aecon reports second quarter 2014 results and backlog of $2.7 billion
TORONTO, Aug. 11, 2014 /CNW/ - Aecon Group Inc. (TSX: ARE) today reported results for the second quarter of 2014.
Teri McKibbon, President and Chief Executive Officer, Aecon Group Inc., said: "With our backlog growing in Infrastructure and recovering in Mining, and our Energy segment consistently delivering strong results, we maintain a positive outlook and anticipate making progress during the second half of 2014 towards our Adjusted EBITDA margin target of 9 per cent in 2015."
Mr. McKibbon added: "As previously outlined, we anticipated results to be even stronger and more weighted to the second half of 2014 than is usually the case, and despite a softer second quarter in our Mining segment, our expectations for the second half remain positive. With the ramping up of substantial new projects - particularly in Infrastructure and Mining - the second half of 2014 has the potential to be the strongest half year that Aecon has ever achieved."
HIGHLIGHTS
- Revenue was $590 million for the second quarter of 2014 compared to $698 million for the same period of 2013, largely due to lower revenue in Mining (as a result of lower volume of site installation work following the substantial completion of a significant project in 2013, and lower demand for contract mining services largely driven by temporary client production shutdowns in the oil sands during the second quarter).
- Adjusted EBITDA for the second quarter of 2014 was $13.8 million compared to $36.7 million for the second quarter of 2013 driven by the slower quarter in the Mining segment. For the first half of 2014, Adjusted EBITDA was $16.9 million compared to $25.4 million in the prior year.
- Backlog increased to $2.690 billion at June 30, 2014 from $1.773 billion at the end of 2013. This level is just $87 million below Aecon's record high backlog.
- New contract awards of $1.969 billion were booked in the first six months of 2014 compared to $1.052 billion in the same period of 2013. At the end of the second quarter of 2014 compared to the end of 2013, Infrastructure backlog increased to $1,486 million from $820 million, Energy backlog rose to $937 million as compared to $876 million, and Mining backlog grew to $267 million compared to $77 million.
- Subsequent to quarter end, Aecon was awarded approximately $280 million for three large contracts - one award in each operating segment.
| CONSOLIDATED FINANCIAL HIGHLIGHTS(1) | ||||||||||
| Three months ended | Six months ended | |||||||||
| $ millions (except per share amounts) | June 30 | June 30 | ||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||
| Revenue | $ | 589.6 | $ | 697.6 | $ | 1,051.4 | $ | 1,265.1 | ||
| Gross profit | 40.5 | 59.3 | 69.9 | 81.8 | ||||||
| Marketing, general and administrative expenses | (40.3) | (37.8) | (81.3) | (82.6) | ||||||
| Income from projects accounted for using the equity method | 6.6 | 8.6 | 13.9 | 17.1 | ||||||
| Foreign exchange gain (loss) | 0.1 | - | 0.6 | 0.1 | ||||||
| Gain (loss) on sale of property, plant and equipment | (0.5) | 0.3 | (0.6) | 0.5 | ||||||
| Loss on disposal of a subsidiary | - | - | (2.6) | - | ||||||
| Depreciation and amortization | (14.1) | (14.3) | (31.0) | (31.8) | ||||||
| Operating profit (loss)(2) | (7.8) | 16.2 | (31.0) | (14.9) | ||||||
| Financing expense, net | (11.4) | (9.4) | (22.5) | (18.1) | ||||||
| Fair value gain on convertible debentures | 2.3 | 2.6 | 0.6 | 0.4 | ||||||
| Profit (loss) before income taxes | (16.8) | 9.4 | (52.9) | (32.6) | ||||||
| Income tax recovery (expense) | 4.6 | (1.5) | 14.8 | 10.6 | ||||||
| Profit (loss) | $ | (12.2) | $ | 7.9 | $ | (38.1) | $ | (22.0) | ||
| Profit (loss) | $ | (12.2) | $ | 7.9 | $ | (38.1) | $ | (22.0) | ||
| Exclude: | ||||||||||
| Fair value gain on convertible debentures | (2.3) | (2.6) | (0.6) | (0.4) | ||||||
| Income tax on fair value gain | 0.6 | 0.7 | 0.2 | 0.1 | ||||||
| Adjusted profit (loss)(3) | $ | (13.9) | $ | 6.0 | $ | (38.5) | $ | (22.3) | ||
| Gross profit margin | 6.9% | 8.5% | 6.6% | 6.5% | ||||||
| MG&A as a percent of revenue | 6.8% | 5.4% | 7.7% | 6.5% | ||||||
| Adjusted EBITDA(4) | 13.8 | 36.7 | 16.9 | 25.4 | ||||||
| Adjusted EBITDA margin | 2.3% | 5.3% | 1.6% | 2.0% | ||||||
| Operating margin | (1.3)% | 2.3% | (3.0)% | (1.2)% | ||||||
| Earnings (loss) per share - basic | $ | (0.23) | $ | 0.15 | $ | (0.72) | $ | (0.42) | ||
| Earnings (loss) per share - diluted | $ | (0.23) | $ | 0.13 | $ | (0.72) | $ | (0.42) | ||
| Adjusted earnings (loss) per share - basic(5) | $ | (0.26) | $ | 0.11 | $ | (0.72) | $ | (0.42) | ||
| Adjusted earnings (loss) per share - diluted(5) | $ | (0.26) | $ | 0.11 | $ | (0.72) | $ | (0.42) | ||
| Backlog | $ | 2,690 | $ | 2,215 | ||||||
| (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, 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). |
OPERATING AND FINANCIAL RESULTS
"While we were disappointed by the delay we experienced in securing the additional work we have now booked for our mining business and the temporary client production shutdowns in the oil sands during the second quarter, we move forward with confidence into the second half of 2014 with major new Infrastructure projects ramped up and significant mining work in hand. With $2.7 billion in backlog, which is close to a record, and importantly includes higher embedded margins, and the $280 million in contract awards announced today, we will remain focused on execution," said Teri McKibbon.
Revenue for the three and six months ended June 30, 2014 was lower by $108 million and $214 million, respectively, compared to the same periods in 2013. In the Energy segment, revenue increased by $19 million in both the three and six month periods ended June 30, 2014 with the increases occurring mainly in utilities operations. Offsetting these increases were declines in Mining, with the largest decreases occurring in mining construction services, and in the Infrastructure segment, primarily in the buildings operations of social infrastructure and in transportation operations.
Adjusted EBITDA for the second quarter of 2014 decreased to $13.8 million (margin of 2.3 per cent) compared to an Adjusted EBITDA of $36.7 million (margin of 5.3 per cent) for the second quarter of 2013. For the six month period, Adjusted EBITDA was $16.9 million (margin of 1.6 per cent) compared to $25.4 million (margin of 2.0 per cent).
Operating profit for the three months ended June 30, 2014 decreased by $24.0 million over the same quarter in 2013, leading to an operating loss of $7.8 million, while the operating loss for the six months ended June 30, 2014 of $31.0 million increased by $16.1 million compared to the same period in 2013.
Unfavourably impacting operating profit for the three months ended June 30, 2014 was a decrease in gross profit of $18.8 million compared to the same period in 2013. This decrease occurred substantially in the Mining segment, primarily from lower revenue and margins in mining construction services, following the completion of certain large projects during the past twelve months and lower margin in contract mining. Although Mining secured a number of new contract awards during the second quarter, the impact of these new projects will not be realized until the second half of the year.
Backlog increased to $2.690 billion at June 30, 2014 from $2.215 billion at the end of the second quarter in 2013.
New contract awards of $1,101 million were booked in the second quarter of 2014 compared to $840 million in the same period of 2013. New contract awards of $1,969 million were booked in the first six months of 2014 compared to $1,052 million in the same period of 2013.
Subsequent to quarter end, Aecon was awarded approximately $280 million in three large contracts - one award in each operating segment.
Not included in backlog, but important to Aecon's prospects due to the increasingly significant volume involved, is the expected recurring revenue from Aecon's growing alliances and supplier-of-choice arrangements where the amount and/or value of work to be carried out is not specified. This recurring revenue currently represents approximately 25 per cent of annual revenue.
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 and social infrastructure markets.
| Financial Highlights | |||||||||||
| Three months ended | Six months ended | ||||||||||
| $ millions | June 30 | June 30 | |||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||
| Revenue | $ | 191.1 | $ | 239.9 | $ | 297.6 | $ | 389.7 | |||
| Gross profit | $ | 6.8 | $ | 7.9 | $ | 0.4 | $ | (7.3) | |||
| Adjusted EBITDA | $ | (4.8) | $ | (1.5) | $ | (21.6) | $ | (31.2) | |||
| Operating loss | $ | (8.9) | $ | (5.7) | $ | (32.1) | $ | (39.3) | |||
| Adjusted EBITDA margin | (2.5)% | (0.6)% | (7.2)% | (8.0)% | |||||||
| Operating margin | (4.7)% | (2.4)% | (10.8)% | (10.1)% | |||||||
| Backlog | $ | 1,486 | $ | 1,027 | |||||||
For the three months ended June 30, 2014, revenue in the Infrastructure segment of $191 million decreased by $49 million, or 20%, over the same period last year. Most of the decrease in revenue occurred in social infrastructure operations ($56 million), primarily from less ongoing work in buildings operations in Ontario compared to the same period in the prior year and from the closure of the Seattle operations during the first quarter of 2014. In addition, transportation operations also experienced slightly lower revenue of $5 million due to lower volume in Ontario. These reductions were partially offset by an increase in revenue from heavy civil operations ($13 million) largely as a result of the commencement of work on new projects, including the John Hart Generating Station and the Region of Waterloo Light Rail Transit projects which were awarded in 2014.
For the three months ended June 30, 2014, operating loss in the Infrastructure segment of $8.9 million was $3.2 million higher than the same period in 2013. Most of the increase in operating loss occurred in social infrastructure operations ($5 million) primarily from lower revenue. In heavy civil operations, operating profit declined by $1 million as improvements in gross profit were offset by higher bid costs in the period. These operating profit decreases were partially offset by an increase of $3 million in transportation operations, primarily from margin improvements in Ontario.
Infrastructure backlog at June 30, 2014 was $1,486 million, which is $459 million higher than the same time last year with the largest increases in backlog occurring in heavy civil and transportation operations. New contract awards totalled $400 million in the second quarter of 2014 and $963 million for the first six months, compared to $248 million and $297 million, respectively, in the prior year. The increase in new awards reflects the impact of several large project awards announced this year including the John Hart Generating Station project in heavy civil; the Region of Waterloo Light Rail Transit project; the York Viva Bus Rapid Transit project and the Second Concession Road project for York Region in transportation; along with Regina's new Wastewater Treatment Plant in social infrastructure.
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 module assembly. The Energy segment focuses primarily on the following sectors: oil and gas, power generation, pipelines, utilities, and energy support services.
| Financial Highlights | |||||||||||||||||||||||
| Three months ended | Six months ended | ||||||||||||||||||||||
| $ millions | June 30 | June 30 | |||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||
| Revenue | $ | 294.1 | $ | 275.0 | $ | 542.3 | $ | 523.0 | |||||||||||||||
| Gross profit | $ | 31.0 | $ | 29.8 | $ | 49.6 | $ | 36.1 | |||||||||||||||
| Adjusted EBITDA | $ | 18.1 | $ | 15.4 | $ | 21.9 | $ | 5.3 | |||||||||||||||
| Operating profit | $ | 14.8 | $ | 12.7 | $ | 15.0 | $ | (0.7) | |||||||||||||||
| Adjusted EBITDA margin | 6.1% | 5.6% | 4.0% | 1.0% | |||||||||||||||||||
| Operating margin | 5.0% | 4.6% | 2.8% | (0.1)% | |||||||||||||||||||
| Backlog | $ | 937 | $ | 978 | |||||||||||||||||||
Revenue for the three months ended June 30, 2014 of $294 million in the Energy segment was $19 million, or 7%, higher than the same period of 2013. Revenue from utilities operations increased by $15 million, primarily from a higher volume of pipeline work in Western Canada and from local utility work in Ontario. Revenue also increased in industrial operations by $4 million, primarily from fabrication projects in Atlantic Canada and increased heat recovery steam generator sales in IST, but partly offset by lower fabrication revenue in Western Canada following the completion of certain projects in the second half of 2013.
For the three months ended June 30, 2014, operating profit of $14.8 million was $2.1 million higher than the same period last year. An increase in operating profit in utilities was mainly due to a higher volume of work as noted above, partly offset by a decline in industrial, where volume driven increases in Atlantic Canada and IST were offset by lower profit in Western Canada in the second quarter.
Backlog at June 30, 2014 of $937 million was $41 million lower than the same time last year. The decrease in backlog results primarily from a reduction in utilities backlog due to the work off of significant pipeline projects in Western Canada. New contract awards of $411 million in the second quarter of 2014 were $41 million lower than in the same period in 2013, although new awards of $604 million for the first six months of 2014 were $101 million higher than the same period in 2013. Most of the increase in new awards in the first half of the year occurred in utilities operations in Western Canada and in industrial operations in Central Canada from fabrication and power projects.
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.
| Financial Highlights | |||||||||||
| Three months ended | Six months ended | ||||||||||
| $ millions | June 30 | June 30 | |||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||
| Revenue | $ | 106.9 | $ | 192.1 | $ | 214.4 | $ | 363.6 | |||
| Gross profit | $ | 2.8 | $ | 21.8 | $ | 20.2 | $ | 53.2 | |||
| Adjusted EBITDA | $ | (3.7) | $ | 17.9 | $ | 8.2 | $ | 44.9 | |||
| Operating profit (loss) | $ | (9.6) | $ | 12.6 | $ | (5.2) | $ | 31.4 | |||
| Adjusted EBITDA margin | (3.5)% | 9.3% | 3.8% | 12.3% | |||||||
| Operating margin | (8.9)% | 6.6% | (2.4)% | 8.6% | |||||||
| Backlog | $ | 267 | $ | 210 | |||||||
Revenue of $107 million in the Mining segment for the three months ended June 30, 2014 was $85 million or 44% lower than the same period of 2013. The majority of the decrease ($78 million) was due to lower volume of site installation work in the commodity mining sector following the substantial completion of a significant project in Western Canada in 2013. The remainder of the decrease was largely the result of lower demand during the quarter for contract mining services in the oil sands ($26 million) offset partly by increased volume of $19 million from civil and foundations work related to mining projects. Lower demand for contract mining services was largely driven by temporary client production shutdowns in the oil sands during the second quarter. Although a number of new contract awards were secured in the Mining segment during the second quarter, the impact of these new projects will not be realized until the second half of the year.
For the three months ended June 30, 2014, an operating loss of $9.6 million was $22.2 million worse than the same period last year. A decrease in operating profit in the commodity mining sector resulted primarily from the above-noted lower volume in Western Canada and operating profit also decreased from lower volume and margin in contract mining operations in Western Canada.
Backlog at June 30, 2014 of $267 million was $57 million higher than the same time last year. New contract awards of $294 million in the second quarter of 2014 were $142 million higher than in the same period in 2013, and new awards of $404 million for the first six months of 2014 were $141 million higher than the same period in 2013. The increase in new awards in the first half of the year was largely due to project awards in the contract mining sector in Western Canada including a large mining site development project award at the Fort Hills oil sands project in Alberta, and new awards with a potash client in the commodity mining sector.
CONCESSIONS SEGMENT
The Concessions segment includes the development, financing, construction and operation of infrastructure projects by way of build-operate-transfer, build-own-operate-transfer and other public-private partnership contract structures.
| Financial Highlights | |||||||||||
| Three months ended | Six months ended | ||||||||||
| $ millions | June 30 | June 30 | |||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||
| Revenue | $ | 0.8 | $ | 0.8 | $ | 1.4 | $ | 1.4 | |||
| Gross profit | $ | (0.2) | $ | (0.1) | $ | (0.4) | $ | (0.2) | |||
| Income from projects accounted for using the equity method |
$ | 6.2 | $ | 5.9 | $ | 11.7 | $ | 12.9 | |||
| Adjusted EBITDA | $ | 12.1 | $ | 11.8 | $ | 23.8 | $ | 20.4 | |||
| Operating profit | $ | 5.1 | $ | 5.1 | $ | 9.7 | $ | 11.3 | |||
Revenue reported in the Concessions segment for both the three months ended June 30, 2014 and June 30, 2013, was $0.8 million, while revenue for both the six months ended June 30, 2014 and June 30, 2013, was $1.4 million.
For the three months ended June 30, 2014, operating profit of $5.1 million was consistent with the same period last year, while for the six months ended June 30, 2014, operating profit of $9.7 million was $1.6 million lower than the same period last year. For both the second quarter and year-to-date results in 2014, increases in revenue and Adjusted EBITDA from the new Quito airport concessionaire were offset by higher interest and amortization charges related to Quito operations. Following the opening of the new Quito airport on February 20, 2013, the project commenced expensing interest (whereas prior to the opening of the new airport, interest was being capitalized) and began amortizing airport assets that were put into service as of that date.
OUTLOOK
"Aecon's position as Canada's premier construction and infrastructure development company is demonstrated by the contracts that we have been recently awarded. We will remain focused on our business strategy and execution in order to translate the bid margin embedded in our backlog to the bottom line as well as being disciplined and diligent in pursuing the substantial opportunities on the horizon," said John M. Beck, Aecon's Executive Chairman.
CONSOLIDATED RESULTS
The consolidated results for the three and six months ended June 30, 2014 and 2013 are available at the end of this news release.
| Balance Sheet Highlights | ||||
| June 30 | Dec. 31 | |||
| $ thousands (unaudited) | 2014 | 2013 | ||
| Cash and cash equivalents and restricted cash | $ | 108,483 | $ | 244,536 |
| Other current assets | 850,909 | 885,052 | ||
| Property, plant and equipment | 499,559 | 512,257 | ||
| Other long-term assets | 385,950 | 351,741 | ||
| Total Assets | $ | 1,844,901 | $ | 1,993,586 |
| Current liabilities | $ | 830,461 | $ | 940,356 |
| Long-term debt | 116,357 | 123,128 | ||
| Convertible debentures (long term portion) | 252,674 | 248,817 | ||
| Other long-term liabilities | 95,722 | 94,677 | ||
| Equity | 549,687 | 586,608 | ||
| Total Liabilities and Equity | $ | 1,844,901 | $ | 1,993,586 |
CONFERENCE CALL
A conference call has been scheduled for Tuesday, August 12, 2014 at 10 a.m. (ET) to discuss Aecon's 2014 second quarter financial results. Participants should dial 416-359-3130 or 1-800-706-9230 at least 10 minutes prior to the conference time. For those unable to attend the call, a replay will be available after 11:30 a.m. at 1-800-558-5253 or 416-626-4100 until midnight on August 19, 2014. The reservation number is 21721355.
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.
STATEMENT ON FORWARD-LOOKING INFORMATION
The information in this press release includes certain forward-looking statements. These forward-looking statements are based on currently available competitive, financial and economic data and operating plans but are subject to risks and uncertainties. In addition to events beyond Aecon's control, there are factors which could cause actual or future results, performance or achievements to differ materially from those expressed or inferred herein including, but not limited to: interest and foreign exchange rates, global equity and capital markets, business competition and operational and reputational risks, including Large Project Risk and Contractual Factors. Readers are referred to the specific risk factors relating to and affecting Aecon's business and operations as filed by Aecon pursuant to applicable securities laws. Forward-looking statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, ongoing objectives, strategies and outlook for Aecon. Forward-looking statements, may in some cases be identified by words such as "will," "plans," "believes," "expects," "anticipates," "estimates," "projects," "intends," "should" or the negative of these terms, or similar expressions. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Aecon undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
| CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
| (in thousands of Canadian dollars, except per share amounts) (unaudited) | ||||||||||
| For the three months ended | For the six months ended | |||||||||
| June 30 | June 30 | June 30 | June 30 | |||||||
| 2014 | 2013 | 2014 | 2013 | |||||||
| Revenue | $ | 589,566 | $ | 697,641 | $ | 1,051,439 | $ | 1,265,080 | ||
| Direct costs and expenses | (549,096) | (638,316) | (981,520) | (1,183,250) | ||||||
| Gross profit | 40,470 | 59,325 | 69,919 | 81,830 | ||||||
| Marketing, general and administrative expenses | (40,286) | (37,785) | (81,282) | (82,599) | ||||||
| Depreciation and amortization | (14,136) | (14,267) | (30,964) | (31,778) | ||||||
| Income from projects accounted for using the equity method | 6,578 | 8,637 | 13,899 | 17,059 | ||||||
| Other income (loss) | (407) | 267 | (2,546) | 564 | ||||||
| Operating profit (loss) | (7,781) | 16,177 | (30,974) | (14,924) | ||||||
| Finance income | 302 | 821 | 906 | 1,353 | ||||||
| Finance costs | (11,660) | (10,182) | (23,407) | (19,459) | ||||||
| Fair value gain on convertible debentures | 2,302 | 2,576 | 597 | 420 | ||||||
| Profit (loss) before income taxes | (16,837) | 9,392 | (52,878) | (32,610) | ||||||
| Income tax recovery (expense) | 4,622 | (1,505) | 14,762 | 10,585 | ||||||
| Profit (loss) for the period | $ | (12,215) | $ | 7,887 | $ | (38,116) | $ | (22,025) | ||
| Basic earnings (loss) per share | $ | (0.23) | $ | 0.15 | $ | (0.72) | $ | (0.42) | ||
| Diluted earnings (loss) per share | $ | (0.23) | $ | 0.13 | $ | (0.72) | $ | (0.42) | ||
SOURCE: Aecon Group Inc.
Vince Borg
Senior Vice President, Corporate Affairs
Aecon Group Inc.
416-297-2615
[email protected]
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