TORONTO, Nov. 11, 2015 /CNW/ - Aecon Group Inc. (TSX: ARE) today reported results for the third quarter of 2015 including progress on revenue and margin performance, and record backlog of $3.4 billion as at September 30, 2015. 

HIGHLIGHTS

• Revenue of $875 million for the third quarter 2015 represented growth of 4 per cent from the same period last year, or 7 per cent on a like for like basis excluding the period-over-period impact of the sale of IST in April 2015. For the first nine months revenue has grown 8 per cent, or 10 per cent on a like for like basis, with growth in all three main operating segments.
  
  
• Adjusted EBITDA in the third quarter of $76.1 million at a margin of 8.7 per cent compared to $77.3 million at a margin of 9.2 per cent in the same period last year. On a like for like basis in the third quarter, excluding IST and Quiport Adjusted EBITDA from the prior period, Adjusted EBITDA of $76.1 million and margin of 8.7 per cent compared to $59.6 million, an improvement of $16.5 million, and margin of 7.3 per cent.
  
  
• Backlog at September 30, 2015 of $3,394 million is the highest on record for Aecon and compares to backlog of $2,667 million as at September 30, 2014.
  
  
• Subsequent to quarter end, an Aecon 50/50 JV was awarded two pipeline contracts with a total value of $70 million in Alberta by TransCanada Pipelines Limited. Additionally, Aecon was awarded a 5-year mining services agreement with a major oil sands producer near Fort McMurray, Alberta.
  
  
• On October 16, 2015 a milestone was achieved when the proposed sale of Aecon's interest in the Quito International Airport Concessionaire (Quiport) received anti-trust approval from the Government of Ecuador. The transaction remains subject to formal approval from the lenders to Quiport. Once the sale transaction closes, net sale proceeds of approximately US$195 million will be received.
  
  
• Subsequent to quarter end, on October 31, 2015, $92 million of convertible debentures matured and were repaid in full, in cash.
  
  
• Aecon has been recognized as a 50 Best Employer in Canada for the ninth consecutive year through the Aon national survey published by Canadian Business magazine. Aecon is pleased to receive the top ranking of platinum for being in the top 25 percentile of companies surveyed.

OPERATING AND FINANCIAL RESULTS

"Aecon's strategic diversification remains a key strength, providing overall stability to our business," said Teri McKibbon, President and Chief Executive Officer, Aecon Group Inc. "We are well positioned to work on the significant large-scale infrastructure and heavy civil opportunities on the horizon, and while there is still softness in commodity markets, we continue to bid and win work in the Energy segment, including a strong demand for fabrication and module services. Our Mining segment expects to see continued solid demand for its services and all segments have strong backlog going into 2016."

Revenue for the three and nine months ended September 30, 2015 was higher by $35 million and $152 million, respectively, compared to the same periods in 2014. On a like for like basis revenue increased 7 per cent excluding the period-over-period impact of the sale of IST in April 2015. For the first nine months revenue has grown 10 per cent on a like for like basis, with growth in all three main operating segments.

Adjusted EBITDA in the third quarter of $76.1 million at a margin of 8.7 per cent compared to $77.3 million at a margin of 9.2 per cent in the same period last year. However, in addition to the impact of the sale of IST in April 2015, the period-over-period Adjusted EBITDA comparison was also impacted by the classification of Aecon's investment in Quiport as an "asset held for sale" in June 2015. On a like for like basis in the third quarter, excluding IST and Quiport Adjusted EBITDA from the prior period, Adjusted EBITDA of $76.1 million and margin of 8.7 per cent compared to $59.6 million, an improvement of $16.5 million, and margin of 7.3 per cent, an improvement of 1.4 per cent.  On a year-to-date basis, like for like improvement in Adjusted EBITDA is $36.9 million and Adjusted EBITDA margin has improved by 1.5 per cent.

Operating profit of $55.4 million for the three months ended September 30, 2015 improved by $1.7 million compared to an operating profit of $53.7 million in the same period in 2014, while operating profit for the nine months ended September 30, 2015 of $57.1 million improved by $34.3 million when compared to an operating profit of $22.8 million in the same period last year.

The sale of IST in April 2015 and the classification of Aecon's investment in Quiport as "held for sale" in June 2015 have impacted Aecon's results for the three and nine-month periods ended September 30, 2015 when compared to the same periods in the prior year. A summary of these impacts is included below:

Backlog at September 30, 2015 of $3,394 million is the highest on record and compares to backlog of $2,667 million as at September 30, 2014. New contract awards of $1,681 million were booked in the third quarter of 2015 compared to $818 million in the same period of 2014.  New contract awards of $2,784 million were booked in the first nine months of 2015 compared to $2,787 million in the same period of 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. 

Subsequent to quarter end, an Aecon 50/50 JV was awarded two pipeline contracts in Alberta in Aecon's Energy segment, valued at $70 million, by TransCanada Pipelines Limited. Work is expected to start in the fourth quarter of 2015, for scheduled completion in the fourth quarter of 2016.  

Additionally, Aecon was awarded a mining services agreement with a major oil sands producer near Fort McMurray, Alberta.  The annual recurring revenue agreement runs from September 1, 2015 to August 31, 2020 and will utilize Aecon's fleet of heavy contract mining equipment. 

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.

In the third quarter of 2015, revenue in the Infrastructure segment of $325 million was $11 million, or 3 per cent lower than the same period last year. Revenue was higher in heavy civil operations largely due to the ramp up of work from projects in the heavy civil transportation sector in Ontario and in the power sector in Western Canada.  However, revenue was lower in transportation operations due to a lower volume of road building construction in Ontario and Western Canada. Revenue was also lower in social infrastructure operations largely due to a lower volume of buildings work in Ontario and Western Canada.

In the third quarter of 2015, operating profit in the Infrastructure segment of $29.0 million improved by $7.3 million compared to an operating profit of $21.7 million in the same period in 2014. Operating profit improved in social infrastructure operations due to higher gross profit margin from mechanical work in the water and wastewater treatment sector and from a $1.3 million gain on sale of assets in the buildings business.  Operating profit also increased in transportation primarily due to higher gross profit margin from operations in Western Canada. Operating profit decreased in heavy civil operations during the quarter due largely to higher bid costs.

Infrastructure backlog at September 30, 2015 was $2,318 million, which is $882 million higher than the same time last year. The largest year-over-year increases in backlog occurred in transportation and heavy civil operations due in large part to the award for the Eglinton Crosstown Light Rail Transit ("LRT") project to a consortium in which Aecon has a 25 per cent interest.  Offsetting these increases was lower backlog in social infrastructure. New contract awards totalled $1,348 million in the third quarter of 2015 and $1,721 million year-to-date, compared to $286 million and $1,249 million, respectively, in the prior year. The increase in new awards was due mainly to the above noted LRT award.

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 consolidated revenue.

On April 10, 2015, Aecon sold its wholly owned subsidiary, Innovative Steam Technologies Inc. ("IST"). 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 the nine months ended September 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 third quarter of 2015 of $340 million in the Energy segment was $28 million, or 8 per cent, lower 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 fabrication and module assembly projects in the resources sector. Industrial revenue also increased in Central Canada mainly from additional work in the power and gas distribution sectors and higher fabrication volume. However, revenue in industrial operations was negatively impacted by the sale of IST earlier this year. The reduction in revenue from utilities operations was primarily due to lower volume from pipeline projects in Western Canada.  

In the third quarter of 2015, operating profit of $17.7 million decreased by $6.7 million when compared to the same period last year. The majority of the reduction in operating profit occurred in utilities operations and was primarily volume driven. Operating profit also decreased in industrial operations with the decrease occurring as a result of the sale of IST earlier this year.  Excluding the impact of IST, overall operating profit from industrial operations within the Energy segment increased primarily due to higher volume in Central and Western Canada. 

Backlog at September 30, 2015 of $758 million was $171 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. The decline in industrial backlog was mostly the result of a reduction in backlog attributed to the sale of IST and lower backlog in Western Canada from site construction projects. New contract awards of $287 million in the third quarter of 2015 were $73 million lower than in the same period in 2014, and new awards of $693 million for the first nine months of 2015 were $271 million lower than in the same period in 2014. The decrease in new awards for the quarter and for the year-to-date period reflects the impact of fewer new awards from utilities operations and lower awards in industrial operations as well as the impact on awards from the sale of IST.

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.

Revenue of $214 million in the Mining segment for the three months ended September 30, 2015 was $65 million, or 44 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. Revenue from civil and foundations work related to mining projects was also higher due primarily to higher volume in Eastern Canada.  Partially offsetting these increases was lower revenue from contract mining where higher revenue from work at new site development projects in Alberta was more than offset by reduced volume from other traditional contract mining work.

In the third quarter of 2015, operating profit of $18.2 million improved by $8.5 million when compared to an operating profit of $9.7 million in the same period in 2014. Year-to-date operating profit of $34.9 million improved by $30.5 million when compared to an operating profit of $4.4 million in the same period last year. Operating profit improved in all three sectors within the Mining segment for both the three and nine-month periods ended September 30, 2015. Operating profit in the commodity mining sector increased when compared to the same periods last year primarily due to higher volume, and operating profit in contract mining operations in both periods 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 periods in 2014.  In civil and foundations work, operating profit increased in the third quarter and year-to-date periods due to higher gross profit margin from ongoing projects, which more than offset lower income from projects reported under the equity method in the year-to-date period.

Backlog at September 30, 2015 of $318 million was $15 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 project awards. This increase was partially offset by a decrease in backlog in contract mining operations largely due to work off of backlog related to new site development projects in Alberta and lower backlog in civil and foundations operations.  New contract awards of $50 million in the third quarter of 2015 were $135 million lower than in the same period in 2014, and new awards of $381 million for the first nine months of 2015 were $208 million lower than in the same period in 2014. The decrease in awards in the first nine months of the year was largely due to a reduction in new awards for contract mining work when compared to the same period last year, partially offset by higher awards in civil and foundations operations.

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 a gross purchase price of US$232.6 million.  The transaction remains subject to formal approval by lenders to Quiport.  As Aecon's 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 September 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 and nine-month periods ended September 30, 2015 when compared to the same periods in the prior year.

Revenue reported in the Concessions segment for the three months ended September 30, 2015 and 2014, was $1.2 million and $0.7 million, respectively, while revenue for the nine months ended September 30, 2015 and 2014, was $2.5 million and $2.1 million, respectively. 

For the three months ended September 30, 2015, operating profit of $0.9 million decreased by $4.9  million when compared to the same period last year and for the nine months ended September 30, 2015, operating profit of $11.1 million was $4.3 million lower when compared to the same period in 2014.  The decline in operating profit in both periods was due to a reduced contribution from the Quito airport concessionaire for the reasons cited above, and offset in part by increased profit contributions from recent light rail transit ("LRT") concession projects in Ontario. 

OUTLOOK
"The outlook for the remainder of 2015 and into 2016 is positive due to Aecon's strong backlog position, recurring revenue agreements and solid margin profile in each of our operating segments – which continue to bid on opportunities with the overarching goal of steady EBITDA margin improvement," said Teri McKibbon. "The significant infrastructure commitments of the newly-elected Liberal federal government bode well for Aecon, as we are primed to deliver large-scale, multi-disciplinary infrastructure projects."

CONSOLIDATED RESULTS
The consolidated results for the three and nine months ended September 30, 2015 and 2014 are available at the end of this news release.

CONFERENCE CALL

A conference call has been scheduled for Thursday, November 12, 2015 at 10 a.m. (ET) to discuss Aecon's third quarter 2015 financial results.  Participants should dial 416-981-9070 or 1-800-408-6335 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 November 19, 2015. The reservation number is 21776227.

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.

SOURCE Aecon Group Inc.