2017-06-29 Avcorp Announces 2016 Annual and 2017 First Quarter Financial Results

Avcorp Announces 2016 Annual and 2017 First Quarter Financial Results

2016 Annual Report Q1 2017 Report
June 29, 2017

VANCOUVER: Avcorp Industries Inc. (TSX: AVP) (the “Company”, “Avcorp” or the “Avcorp Group”) today announced its financial results for the year ended December 31, 2016 and quarter ended March 31, 2017. All amounts are in Canadian currency unless otherwise stated.
2016 Highlights 

Key fiscal year 2016 financial results include:
  • Signing significant new contracts during the year at each operating unit increasing order backlog to $826 million, an increase of 82%.
  • Completing numerous process improvement initiatives, restructuring activities and contract renegotiations have significantly reduced production costs on a go forward basis. Operating and warranty issues at ACF have been the largest cause of losses for the Company, significantly contributing to consolidated net loss of $15,964,000 (December 31, 2015: $12,154,000 net loss).
  • Renegotiating a significantly unfavourable production contract, reducing the period of performance by four years.
  • Ratified a new six-year collective agreement at the Gardena facility, providing for stability in labour force, and labour cost certainty, through to 2022.
  • Obtaining additional financial support from a majority shareholder during 2016 and the first quarter of 2017 through term debt amounting to USD$5.9 million.
  • Entering into a Memorandum of Understanding with the University of British Columbia to pursue an innovative partnership by establishing a Learning Factory for Advanced Composites. 
Highlights Subsequent to Year-End

Since December 31, 2016 key developments include:
  • On May 26, 2017, the Company signed a loan agreement to replace the current agreement with a Canadian Chartered Bank, supported by a major and material customer, to access a USD$58 million operating line of credit.
  • On April 3, 2017, the Company collected the final amount of consideration receivable from SGL Carbon SE (“SGL”) for the acquisition of the US-based composite Aerostructures division of Hitco, a subsidiary of Frankfurt-listed SGL (“Hitco”), amounting to USD$9.2 million.
  • The Lessor of the Industrial Centre at Gardena California, where ACF has its manufacturing facilities, received an offer from a third party to purchase the Industrial Centre. On March 28, 2017 Avcorp exercised its right of first refusal under the lease agreement by providing notice to the Lessor that it proposes to purchase the property on the same terms and conditions as presented in the Offer. Avcorp has up to 270 days from the date of providing such notice to present and close a sale transaction with the Lessor. In addition, Avcorp entered into a Memorandum of Understanding and a Letter Agreement with Stockdale Acquisitions LLC to negotiate a joint venture agreement for the ultimate acquisition and development of the property in exchange for a long term lease by Avcorp of a portion of the property on favourable economic terms. On June 26, 2017, Avcorp provided notice to the Lessor of the Industrial Centre at Gardena California that it has elected not to proceed with the acquisition of the property.
Review of 2016 Financial Results
On a year-to-date basis, for the period ending December 31, 2016, the Avcorp Group recorded losses from operations totaling $16,405,000 from $183,707,000 revenue, which include costs incurred and yet to be recovered under the Hitco acquisition agreement, as compared to $11,623,000 operating losses from $80,416,000 revenue for the previous year. 

During the year ended December 31, 2016, cash flows from operating activities, excluding the impact of changes in non-cash working capital, utilized $59,091,000 of cash as compared with utilization of $8,101,000 of cash during the year ended December 31, 2015 as restated. Cash flows from operating activities were most significantly impacted as a result of operating losses incurred from the integration and production costs expended for the newly acquired Hitco operations, losses arising from unfavourable customer contracts assumed, and operational, administrative, and legal expenditures incurred at Avcorp’s Gardena facility as a direct result of product quality and warranty claims on product delivered pre-Hitco acquisition.

As at December 31, 2016, the Company had $3,960,000 cash on hand (December 31, 2015: $14,484,000) and had utilized $17,111,000 of its operating line of credit (December 31, 2015: $Nil). The Company has a working capital deficit of $5,439,000 as at December 31, 2016 which has decreased from the December 31, 2015 $30,962,000 surplus. Working capital surplus is the difference between current assets and current liabilities. The Company’s accumulated deficit as at December 31, 2016 is $93,791,000 (December 31, 2015: $77,827,000).

Review of 2017 First Quarter Financial Results

For the quarter ending March 31, 2017, the Avcorp Group recorded losses from operations totaling $8,617,000 from $38,568,000 revenue, which include costs incurred and yet to be recovered under the Hitco acquisition agreement, as compared to $7,568,000 operating losses from $39,941,000 revenue for the same quarter in the previous year. 

During the quarter ended March 31, 2017, cash flows from operating activities, excluding the impact of changes in non-cash working capital, utilized $9,703,000 of cash as compared with utilization of $12,782,000 of cash during the quarter ended March 31, 2016. Cash flows from operating activities were most significantly impacted as a result of operating losses incurred from the integration and production costs expended for the acquired Hitco operations, losses arising from unfavourable customer contracts assumed, and operational, administrative, and legal expenditures, incurred at Avcorp’s Gardena facility as a direct result of product quality and warranty claims on product delivered pre-Hitco acquisition.

As at March 31, 2017, the Company had $4,220,000 cash on hand (December 31, 2016: $3,960,000) and had utilized $17,631,000 of its operating line of credit (December 31, 2016: $17,111,000). The Company has a working capital deficit of $18,038,000 as at March 31, 2017 which has increased from the December 31, 2016 $5,439,000 deficit. Working capital surplus is defined as the difference between current assets and current liabilities. However, the Company’s accounts receivable and inventories net of accounts payable amount to $24,811,000 as at March 31, 2017 (March 31, 2016: $38,399,000). The Company’s accumulated deficit as at March 31, 2017 is $103,238,000 (December 31, 2016: $93,791,000).

The Company’s complete financial statements and management’s discussion and analysis for the year ended December 31, 2016 and quarter ended March 31, 2017 can be found at www.avcorp.com or at www.sedar.com.

About Avcorp
The Avcorp Group designs and builds major airframe structures for some of the world’s leading aircraft companies, including BAE Systems, Boeing, Bombardier, Lockheed Martin, and Subaru Corporation (formerly Fuji Heavy Industries Inc.). The Avcorp Group has more than 50 years of experience, over 800 skilled employees and 636,000 square feet of facilities. Avcorp Structures & Integration located in Delta British Columbia, Canada is dedicated to metallic and composite aerostructures assembly and integration; Avcorp Engineered Composites located in Burlington Ontario, Canada is dedicated to design and manufacture of composite aerostructures, and Avcorp Composite Fabrication located in Gardena California, USA has advanced composite aerostructures fabrication capabilities for composite aerostructures. The Avcorp Group offers integrated composite and metallic aircraft structures to aircraft manufacturers, a distinct advantage in the pursuit of contracts for new aircraft designs, which require lower-cost, light-weight, strong, reliable structures. Comtek Advanced Structures Ltd., at our Burlington, Ontario, Canada location also provides aircraft operators with aircraft structural component repair services for commercial aircraft.

Avcorp Composite Fabrication Inc. is wholly owned by Avcorp US Holdings Inc. Both companies are incorporated in The State of Delaware, USA, and are wholly owned subsidiaries of Avcorp Industries Inc. 

Comtek Advanced Structures Ltd., incorporated in the Province of Ontario, Canada, is a wholly owned subsidiary of Avcorp Industries Inc.

Avcorp Industries Inc. is a federally incorporated reporting company in Canada and traded on the Toronto Stock Exchange (TSX:AVP).

Contact:
Sandi DiPrimo, Investor Relations Contact | 604-587-4938


Forward-Looking Statements
This release should be read in conjunction with the Company’s unaudited financial statements contained in the Company’s Annual Report and with the quarterly financial statements and accompanying notes filed with Sedar (www.sedar.com). Certain statements in this release and other oral and written statements made by the Company from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or projected revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (b) the occurrence of work stoppages and strikes at key facilities of the Corporation or the Corporation’s customers or suppliers; (c) government funding and program approvals affecting products being developed or sold under government programs; (d) cost and delivery performance under various program and development contracts; (e) the adequacy of cost estimates for various customer care programs including servicing warranties; (f) the ability to control costs and successful implementation of various cost reduction programs; (g) the timing of certifications of new aircraft products; (h) the occurrence of downturns in customer markets to which the Corporation products are sold or supplied or where the Corporation offers financing; (i) changes in aircraft delivery schedules or cancellation of orders; (j) the Corporation’s ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (k) the availability and cost of insurance; (l) the Corporation’s ability to maintain portfolio credit quality; (m) the Corporation’s access to debt financing at competitive rates; (n) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies; and (o) integration of newly acquired operations and associated expenses may adversely affect profitability.


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