Aecon reports 2017 results and announces annual dividend

TORONTO, March 6, 2018 /CNW/ - Aecon Group Inc. (TSX: ARE) today reported results for the fourth quarter and full year 2017, including growth of year-end backlog, improved Adjusted EBITDA margin and significant new project awards. Aecon's Board of Directors approved an annual dividend of 50 cents per share.

"Aecon's 2017 results point to the resilience of our business model and the stability provided by Aecon's diversified strategy," said John M. Beck, President and Chief Executive Officer, Aecon Group Inc. "This past year was a transitional one for Aecon, highlighted by its proposed new partnership with CCCI, which will position Aecon well for growth moving forward. As we look to the year ahead, Aecon remains focused on continuing to grow backlog, further improving margins and successfully executing projects for our clients."

HIGHLIGHTS

• Adjusted EBITDA of $156.5 million (margin of 5.6 per cent) for 2017 compared to Adjusted EBITDA of $158.3 million (margin of 4.9 per cent) for the same period last year. Adjusting for one-time items related to severance and restructuring costs and expenses incurred as a result of the sale process and associated Arrangement (as defined below), Adjusted EBITDA would have been $181.5 million (margin of 6.5 per cent) in 2017 (adjusting for one-time items Adjusted EBITDA was $171.9 million (margin of 5.4 per cent) in 2016).
• Backlog as at December 31, 2017 of $4,247 million compared to backlog of $4,204 million as at December 31, 2016.
• Annual dividend is maintained at 50 cents per share (12.5 cents per quarter).
• On December 21, 2018, an Aecon partnership, of which Aecon has a 30 per cent share, was selected as preferred proponent for the Site C generating station and spillways civil works project with an expected contract award in the first quarter of 2018. 
• On February 8, 2018, an Aecon joint venture, NouvLR Partnership, was selected as preferred proponent on the Réseau express métropolitain Montréal light rail transit project with an expected contract award in the second quarter of 2018.

On October 26, 2017, the Company entered into an arrangement agreement (the "Arrangement Agreement") with CCCC International Holding Limited and 10465127 Canada Inc. (together, "CCCI"), pursuant to which CCCI has agreed, subject to satisfaction of customary conditions, to acquire all of the issued and outstanding Common Shares of Aecon for $20.37 per Common Share in cash by way of a statutory plan of arrangement under the Canada Business Corporations Act (the "Arrangement").

At a meeting of shareholders held on December 19, 2017, shareholders of the Company approved the Arrangement with approximately 99.4% of the Common Shares voted at the meeting voting in favour of the Arrangement. On December 22, 2017, the Ontario Superior Court of Justice (Commercial List) issued a final order approving the Arrangement and Aecon and CCCI are working through the regulatory approvals process as planned. Completion of the proposed transaction remains subject only to approval under the Investment Canada Act and other customary closing conditions for a transaction of this nature. Assuming the satisfaction or waiver of these conditions, the proposed transaction is expected to close by the end of the second quarter and before the July 13, 2018 Outside Date of the Arrangement Agreement.

For additional details, please see the full text of the Arrangement Agreement included in Aecon's management information circular dated November 17, 2017 (the "Circular") filed under Aecon's SEDAR profile at www.sedar.com.

OPERATING AND FINANCIAL RESULTS

Revenue for the year ended December 31, 2017 of $2,806 million was lower by $407 million, or 13%, compared to 2016. The largest decrease occurred in the Mining segment ($464 million) as a result of lower site installation volume in the commodity mining sector ($457 million) and lower revenue from civil and foundations projects ($23 million), offset partially by increased volume in contract mining operations ($16 million). Revenue was also lower in the Infrastructure segment ($81 million), driven by lower volume in the transportation ($78 million) and heavy civil ($14 million) sectors, offset partially by higher revenue from social infrastructure ($11 million). Energy segment revenue was higher ($115 million), as increased revenue in utilities operations ($158 million) was partially offset by lower volume from industrial operations ($43 million).  Concessions revenue was higher year-over-year ($132 million) due to the Bermuda International Airport Redevelopment Project, which was partially offset by higher inter-segment eliminations ($109 million) that were mostly related to revenue between the Concessions and Infrastructure segments.

Despite a $6.5 million increase in gross profit and Adjusted EBITDA margin improvement, operating profit for the year ended December 31, 2017 decreased by $33.5 million compared to 2016. This decrease was driven by lower overall volume, a $29.4 million increase in 2017 depreciation and amortization expense, primarily due to amortization in the Concessions segment related to the concession granted to operate the existing airport as part of the Bermuda International Airport Redevelopment Project, and a $1.4 million increase in marketing, general and administrative expenses which were impacted by one-time severance and restructuring costs ($16.1 million), as well as one-time expenses incurred as a result of the sale process and subsequent Arrangement ($8.9 million). Also impacting operating profit was a $4.0 million decrease in income from projects accounted for using the equity method, after a significant project was completed in 2017 that was ongoing throughout 2016, and other income decreasing by $5.1 million primarily due to lower oil sands fire-related insurance recoveries compared to the prior year.

Reported backlog as at December 31, 2017 of $4,247 million compares to backlog of $4,204 million as at December 31, 2016. New contract awards of $2,849 million were booked in 2017 compared to $4,156 million in 2016. The variance in new contract awards is primarily due to the $1,375 million award for the Darlington nuclear refurbishment project recorded in January 2016.

Aecon does not report as backlog the significant number of contracts and arrangements in hand where the exact amount of work to be performed cannot be reliably quantified or where a minimum number of units at the contract specified price per unit is not guaranteed. Examples include time and material and some cost-plus and unit priced contracts where the extent of services to be provided is undefined or where the number of units cannot be estimated with reasonable certainty.  Other examples include the value of construction work managed under construction management advisory contracts, concession agreements, multi-year operating and maintenance service contracts where the value of the work is not specified, supplier of choice arrangements and alliance agreements where the client requests services on an as-needed basis. None of the expected revenue from these types of contracts and arrangements is included in backlog.  Therefore, Aecon's effective backlog at any given time is greater than what is reported.

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, transit, heavy civil, and water and wastewater treatment markets.

Revenue in the Infrastructure segment of $950 million in 2017 was $81 million, or 8%, lower than 2016. The largest decrease occurred in transportation operations ($78 million) as a result of lower roadbuilding activity in Ontario, which was impacted by unusually wet weather in the first half of the year and the completion of a significant project that provided higher revenue in the previous year.  Heavy civil revenue was also lower than the previous year ($14 million) as increased activity in Ontario from light rail projects was more than offset by lower volume in Western Canada on hydroelectric related work. Partially offsetting these decreases was an increase in social infrastructure operations ($11 million), due mostly to the commencement of the Bermuda International Airport Redevelopment Project in early 2017, partially offset by lower volume from water treatment plant related work in Western Canada.

Operating profit in the Infrastructure segment of $19.7 million in 2017 decreased by $12.7 million compared to 2016.  Operating profit decreased in heavy civil ($6.7 million) primarily as a result of lower contributions from projects accounted for using the equity method of accounting ($5.1 million) after a significant project was completed in 2017 that was ongoing throughout 2016, and increased costs related to new project pursuits. Operating profit in transportation operations also decreased ($6.7 million) due primarily to lower volume and gross profit margin on roadbuilding projects in Ontario.  These decreases were slightly offset by volume and gross profit margin driven increases in social infrastructure operations ($0.7 million).

Infrastructure backlog as at December 31, 2017 was $1,995 million, which is $331 million higher than the same time last year. The increase was driven by social infrastructure ($373 million), due mostly to the award of the Bermuda International Airport Redevelopment Project and mechanical projects in Western Canada, and by transportation operations ($126 million), due to a higher backlog of road construction work in Western Canada. These increases were partially offset by a decrease in heavy civil operations ($168 million) as the execution of light rail and other existing projects in 2017 exceeded new awards in the sector. New contract awards in 2017 totalled $1,282 million compared to $501 million in the prior year. The increase in new awards year-over-year is due mainly to the areas discussed above.

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: power generation, pipelines, utilities, oil and gas, and energy support services.

Revenue in 2017 of $1,472 million in the Energy segment was $115 million, or 8%, higher than in 2016 as higher revenue in utilities ($158 million) was partially offset by lower volume in industrial operations ($43 million). The higher utilities revenue was driven primarily by an increase in pipeline projects, as well as increases in the electricity distribution and residential telecommunications sectors. Revenue was lower in industrial operations due to decreases in field construction, fabrication and module assembly volume in Western Canada ($187 million), partially offset by higher volume in Eastern Canada ($144 million) where increased activity in the nuclear sector was only partially offset by lower gas distribution and fabrication work.

For the year ended December 31, 2017, operating profit of $55.4 million increased by $17.7 million when compared to 2016. The year-over-year increase was largely driven by an increase in utilities operations ($17.8 million) from higher volume and improved gross profit margin.  Operating profit from industrial operations decreased in 2017 ($0.1 million) as improvements from higher volume and gross profit in Eastern Canada, and lower MG&A costs as a result of restructuring initiatives in Western Canada, were more than offset by volume driven lower gross profit in Western Canada.

Backlog at December 31, 2017 of $2,115 million was $257 million lower than the same time last year, with a decrease in industrial operations ($275 million) and an increase in utilities operations ($18 million). Backlog was lower in industrial operations in Eastern Canada ($276 million) due to work-off of significant projects in the nuclear and gas distribution sectors, while backlog increased marginally year-over-year in Western Canada ($1 million). New awards of $1,215 million in 2017, were $1,824 million lower than the previous year, primarily as a result of the Darlington Nuclear Refurbishment project being awarded in early 2016.

As discussed in the Consolidated Financial Highlights section, the Energy segment's effective backlog at any given time is greater than what is reported.

MINING SEGMENT

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

Mining segment revenue of $397 million in 2017 was $464 million, or 54%, lower compared to 2016, due mainly to a decrease in site construction work in the commodity mining sector ($457 million), as well as lower volume from civil and foundations projects ($23 million). Partially offsetting these decreases was higher volume from contract mining operations ($16 million) as traditional contract mining work in Alberta increased after the Alberta wildfires impacted operations in 2016.

For the year ended December 31, 2017, operating profit of $12.0 million in the Mining segment decreased by $55.6 million compared to operating profit of $67.6 million in 2016. The decrease was primarily driven by the lower volume in the commodity mining sector ($55.4 million).

Mining segment backlog as at December 31, 2017 of $119 million was $49 million lower than the same time in 2016. Backlog decreased in the commodity mining sector ($48 million) primarily due to work-off of existing site installation work outpacing new awards in the sector. Backlog from civil and foundations projects decreased by $1 million, while there was no change in contract mining backlog year-over-year. New contract awards of $348 million in 2017 were $304 million lower than 2016. 

As discussed in the Consolidated Financial Highlights section, the Mining segment's effective backlog at any given time is greater than what is reported.

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 ("P3") contract structures. The Concessions segment focuses primarily on project financing, project development and construction and operations support.

Aecon holds a 100% interest in Bermuda Skyport Corporation Limited ("Skyport"), the concessionaire responsible for the Bermuda airport's operations, maintenance and commercial functions, and the entity that will manage and coordinate the overall delivery of the redevelopment project over a 30-year concession term.  Aecon's participation in Skyport is consolidated, and, as such, is accounted for in the consolidated financial statements by reflecting, line by line, the assets, liabilities, revenue and expenses of Skyport. However, Aecon's participation in the Eglinton Crosstown Light Rail Transit ("LRT") and Waterloo LRT concessions are joint ventures which are accounted for using the equity method.

Revenue in the Concessions segment of $135 million for the year ended December 31, 2017 was $132 million higher than in 2016. The higher revenue was driven primarily by Skyport, which was awarded the Bermuda International Airport Redevelopment Project in the first quarter of 2017.  Included in Skyport's revenue was $71 million of construction revenue that was eliminated on consolidation as inter-segment revenue.

Operating profit of $16.3 million in 2017 increased by $17.3 million compared to the prior year.  The higher operating profit resulted from the Bermuda International Airport Redevelopment Project and light rail transit concessions in Ontario.

Except for Operations and Maintenance ("O&M") activities under contract for the next five years, Aecon does not include in its reported backlog expected revenue from concession agreements.  As such, while Aecon expects future revenue from its concession assets, no concession backlog, other than from O&M activities, is reported.

DIVIDEND

The annual dividend is maintained at 50 cents per share to be paid in four quarterly payments of 12.5 cents per share so long as the Company is publicly listed. The first dividend will be paid on April 2, 2018 to shareholders of record on March 23, 2018.

OUTLOOK

"The overall outlook for 2018 remains positive with areas of strength in Aecon's business expected to outweigh the impact of fewer opportunities in commodity and oil related markets," said John M. Beck. "The commitment to increase infrastructure investment by all levels of government across Canada as well as significant opportunities in utilities, P3's, and power, including nuclear, should allow Aecon to leverage its strengths in these areas to grow its revenue, improve Adjusted EBITDA margin and increase backlog in 2018. All four segments continue to engage in robust bidding activity and the pursuit of large-scale, complex projects with key clients."

CONSOLIDATED RESULTS
The consolidated results for the three months and year ended December 31, 2017 and 2016 are available at the end of this news release.

BALANCE SHEET HIGHLIGHTS

AECON 2018 ANNUAL GENERAL MEETING

Aecon's Annual General Meeting will be held on May 10, 2018 at 2 p.m. (Eastern Time) in Toronto, Ontario. Additional details will be set out in the Notice of Meeting and Record Date to be filed on SEDAR.

ABOUT AECON

Aecon Group Inc. (TSX: ARE) is a Canadian leader and partner-of-choice in construction and infrastructure development.  Aecon provides integrated turnkey services to private and public sector clients in the Infrastructure, Energy and Mining sectors and provides project management, financing and development services through its Concessions segment. For more information, please visit www.aecon.com and follow us on Twitter at @AeconGroup.

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.  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.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.  In addition, there are risks and uncertainties inherent in the Arrangement, including the failure of Aecon and CCCI to obtain applicable Investment Canada Act approvals or to otherwise satisfy the conditions to the completion of the Arrangement, in a timely manner, or at all.  Failure to so obtain such approvals, or the failure of the parties to otherwise satisfy the conditions to or compete the Arrangement, may result in the Arrangement not being completed on the proposed terms, or at all.  In addition, if the Arrangement is not completed, and Aecon continues as an independent entity, there are risks that the announcement of the Arrangement and the dedication of substantial resources of Aecon to the completion of the Arrangement could have an impact on Aecon's current business relationships (including with future and prospective employees, customers, distributors, suppliers and partners) and could have a material adverse effect on the current and future operations, financial condition and prospects of Aecon. 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.