Aecon Group Inc. (AEGXF.PK)
Q1 2010 Earnings Call
May 5, 2010 10:30 am ET
John Beck - Chairman and CEO
Scott Balfour - President
David Smales - EVP and CFO
Mitch Patten - SVP, Corporate Affairs
Frederic Bastien - Raymond James
Greg McLeish - GMP Securities
Michael Tupholme - TD Newcrest
Paul Lechem - CIBC
Chris Blake - Stonecap Securities
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Welcome to Aecon’s Q1 Analyst Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer-session. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, May 5, 2010.
I would now like to turn the conference over to Mr. Mitch Patten. Please go ahead, sir.
Good morning, everyone. Thank you for participating in our analyst conference call regarding Aecon’s first quarter 2010 results.
My name is Mitch Patten, I am Senior VP of corporate affairs for Aecon Group. Joining us this morning are John Beck, Aecon’s Chairman and CEO, Scott Belfour our President and Dave Smales, our Chief Financial Officer.
Before turning the call over to Scott, I want to remind our listeners that some of the information we’re sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertainties. Although, Aecon believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct.
With that said, I’ll turn the call over to Scott. Scott?
Thank you, Mitch. Good morning everyone and thank you for joining us. I'll begin by touching briefly on Aecon's consolidated results for the first quarter of 2010. David will then review the segment results before turning the call over to John, who will discuss the outlook going forward.
Overall, the first quarter of 2010 can be characterized by stronger revenues, primarily in the industrial segment and as we had anticipated somewhat lower earnings, also primarily in the industrial segment. As I mentioned, David would discuss the segmented results in more detail in a few minutes, but because there is so much in the story this quarter, let me say here that the industrial results were impacted by a few important factors this quarter,
First, with the addition of the Lockerbie & Hole acquired in the second quarter of 2009, which had significant top and bottom line impact on a year-over-year basis.
Second, as it's clear and well understood the softening of the industrial construction market that has occurred in the past 12 to 18 months.
Third, perhaps less obvious on the surface, was the impact of a couple of a large projects in Ontario that contributed very high margins in the first quarter of 2009, as it has contractual and project completion milestones, margins that were not repeated this quarter.
Therefore the impact of these factors was a quarter in the industrial segment that was very similar to the fourth quarter, in terms of operating margin that was substantially different from the first quarter of 2009.
On a consolidated basis revenues in the first quarter of 2010 were $426 million, an increase of 25% compared to the same quarter of 2009, with a revenue increases in the industrial and building segments more than offsetting decreases in the infrastructure and construction segments.
Operating losses of $4.1 million in the first quarter were $3 million higher than in the first quarter of 2009. The decrease in earnings is largely due to a decline in gross margin from 9.6% of revenues during the first quarter of last year to 6.4% of revenues in the first quarter of 2010. The declines were primarily in the industrial segment, as noted earlier.
Net interest expense of $5 million in the first quarter of 2010 was $6.3 million higher than the first quarter of 2009. The increase resulted primarily from higher levels of non-recourse debt related to the three Infrastructure Ontario projects that are currently in progress and from interest costs related to the issuance of convertible debentures in the third quarter of 2009.
Overall, the net loss of $6.6 million or $0.12 loss per share compares with a net loss of $600,000 or $0.01 loss per share in the first quarter of 2009.
Backlog at March 31 as $2.12 billion, an increase of more than 50% since the same time last year. The quarter-over-quarter comparison of backlog was favorably impacted by the acquisition of Lockerbie & Hole in the second quarter of 2009 and notably, new contract awards up $362 million in the first quarter of 2010 represents a 22% increase over the $296 million reported in the first quarter of 2009.
David will now review the segment by segment results. David?
Thanks, Scott. Starting with the Infrastructure segment, revenues of $98 million were $13 million lower than the first quarter 2009. Most of the revenue decrease resulted from a slowdown in the pace of construction at the new Quito airport compared to year ago and from civil operations in Western Canada. We are offsetting these declines with an increase in revenues from utilities operation generated by growth in Western Canada.
The Infrastructure segment operating loss of $10.2 million in the quarter represented $3 million or 23% improvement over the same quarter in 2009. Operating profit increases in the segments material and civil operations will probably offset by decreases in utilities and international operations. Results in the material segment were impacted by $7 million gain on sale of land during the quarter.