Aegion Names Gordon President and CEO, Announces Restructuring Plans

Aegion Corporation (Aegion) (Nasdaq Global Select Market: AEGN), a global leader in infrastructure protection and maintenance, announced Oct. 6 that its board of directors has appointed Charles R. “Chuck” Gordon as president and CEO, effective immediately. Aegion also announced restructuring and realignment plans that take effect during the fourth quarter of 2014.

Gordon had served as interim CEO since May after the resignation of J. Joe Burgess, who cited personal reasons for his departure.

“This decision was not only based on his previous executive and industry experiences, but also on the leadership qualities he has displayed while in the role of interim chief executive officer,” said Alfred L. Woods, chairman of the board of directors. “Having served on the Board of Directors since 2009, Chuck has a thorough understanding of our business, operations and strategy, and a deep appreciation for the hard work and dedication of our employees. We are very pleased Chuck has decided to accept the permanent position and are confident that he is very well qualified to lead the Company into its next chapter of growth.”

“I am honored to become the president and chief executive officer of Aegion Corp.,” said Gordon. “Over the last five months, I have worked closely with Aegion’s management team and traveled to many of our company’s locations. During this time, it has become apparent to me that Aegion is uniquely positioned to succeed across the markets we serve.”

Aegion also announced that it will realign its businesses into three new platforms with unique leadership teams. The realignment focuses on streamlining the organization to improve execution and enhance growth and profitability.

Aegion will combine the Water and Wastewater and Commercial and Structural segments to form the Infrastructure Solutions platform. This new platform will include the market leading products of Insituform and Fyfe/Fibrwrap, and offer clients a more comprehensive solution for the rehabilitation and strengthening needs of their critical infrastructure assets (primarily pipelines), but also for structures and transportation assets. This segment is expected to account for more than 45 percent of Aegion’s consolidated 2014 revenues. In North America, Insituform and Fyfe/Fibrwrap will execute a combined municipal sales and business development effort with more than 3,000 contracting clients. Fyfe/Fibrwrap will build on the investments made to reestablish growth in industrial pipelines, structures and DOT infrastructure through a focused sales and business development effort. Fyfe/Fibrwrap also will leverage Insituform’s project management capabilities and fully integrated back office systems resulting in greater attention to market access, business development and improved execution. In Asia-Pacific, the combination of the two businesses will leverage best practices and resources to drive sustainable improvement across the region for both product lines.

Over the last five months, Insituform conducted a thorough review of its international contracting operations, with the objective of reducing risk, increasing market visibility and generating consistent and sustainable operating profits. The recent comprehensive review has resulted in the decision to transition the Insituform businesses in France, Switzerland, India, Hong Kong, Malaysia and Singapore from CIPP contract installation services to the marketing and sale of Insituform’s manufactured products and technical services to local contractors.

This decision was made taking into account market size, bid table consistency, supportive governmental bid process, length of cash collections and operating results in each country. Aegion recorded $16 million, $7.6 million and $2.9 million in operating losses associated with these markets, including administrative and headquarter expenses, for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2014, respectively. The transition is expected to conclude by the end of the third quarter of 2015 as Insituform completes existing backlog in the affected countries.

“By combining Fyfe/Fibrwrap and Insituform to form our new Infrastructure Solutions platform, we are building on our previously announced plans to align the two North American municipal pipeline rehabilitation organizations and give both companies opportunities to strengthen client relationships and increase prospects for growth,” said Gordon. “In addition, it is difficult to be a single product contract installation business without a well-developed and growing CIPP market. We believe Insituform’s transition from contracting services to third-party product sales and technical services in France, Switzerland, India, Hong Kong, Malaysia and Singapore will generate higher and more consistent profitability for our Infrastructure Solutions platform.”

The Corrosion Protection platform will retain the original businesses comprising the Energy & Mining platform (Corrpro, United Pipeline Systems, The Bayou Companies, CCSI and CRTS) created through the company’s diversification activity between 2009 and 2011, and is expected to account for more than 30 percent of Aegion’s 2014 consolidated revenues. Strong energy fundamentals are projected to result in sustained investments in pipeline infrastructure for the oil and gas upstream and midstream segments as well as downstream refining and petrochemical industries, which provides a favorable outlook for Aegion’s Corrosion Protection platform in North America, the Middle East and South America over the near and medium terms. The company plans to evaluate new technologies and services to expand the existing portfolio of technologies and services and allow for the further expansion of the Corrosion Protection platform’s geographic footprint.

This new business platform consists of Brinderson’s operations with respect to long-term maintenance contracts and other essential services including engineering, turnaround and small capital construction for the upstream and downstream oil and gas markets, primarily in California. The Energy Services platform is expected to represent more than 20 percent of Aegion’s consolidated 2014 revenues. Brinderson’s access to these important markets creates opportunities for strong top line growth and cash generation as well as increased contributions from recurring revenue sources.

“We believe the announced actions position Aegion for consistent and sustainable revenue and earnings growth, reduce volatility and focus management time and attention on the markets and activities that provide the greatest opportunities for the company,” said Gordon. “Management expects between 150 to 170 full-time positions to be eliminated as a result of the realignment out of approximately 6,000 employees at Aegion worldwide. The actions taken today will eliminate international CIPP contracting losses, streamline the sales and operations in the municipal pipeline market, realize back office savings through the combination of Fyfe/Fibrwrap and Insituform and lower fixed costs at Bayou. We expect to generate annual savings of $8 to $11 million, or $0.15 to $0.20 per diluted share, on a GAAP basis, with $0.03 to $0.04 per diluted share in anticipated savings recognized in the fourth quarter of 2014.”

Gordon concluded, “As we look toward 2015 and beyond, we are confident this realignment best positions Aegion for future sustainable and consistent growth. Reorganizing Aegion’s businesses integrates our market-facing organization, which improves our ability to deliver comprehensive solutions to our customers, thereby enhancing the Company’s ability to grow. We are now better positioned to allocate resources for improved execution of a strong line-up of technologies and services led by Corrpro, Brinderson, Insituform North America and United Pipeline Systems, which will allow us to take advantage of strong end markets. We also will evaluate new technologies and services that complement our existing portfolio as well as review growth prospects across all platforms in targeted geographic markets. We believe these strategic actions will improve our ability to achieve Aegion’s longer term financial objectives and are in the best interest of all stakeholders.”
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