November 14, 2016
VANCOUVER: Avcorp Industries Inc. (TSX: AVP) (the “Company”, “Avcorp” or the
“Avcorp Group”) today announced its financial results for the three and nine
month periods ended September 30, 2016. All amounts are in Canadian currency
unless otherwise stated.
“Our third quarter was among our most active ever as marked by our revenue growth and the signing of a major contract award with one our longest-standing customers,” said Mr. Peter George “We are sustaining this momentum into Q4 with the signing of a long-term production contract with Fuji Heavy Industries and efforts to improve operational performance and utilization at our facilities.” Mr. George added, “Looking ahead, we will continue to strengthen our relationships with OEM aircraft manufacturers and their related Tier 1 suppliers through our ongoing efforts to expand our composite manufacturing capabilities. These efforts will run in parallel with initiatives to improve our profitability and market valuation.”
During the quarter ended September 30, 2016 Avcorp Group revenues totalled $41.0 million as compared to $21.6 million in revenue for the same quarter in the previous year. The December 18, 2015 acquisition of the US based composite Aerostructures division of Hitco, a subsidiary of Frankfurt-listed SGL has added $26.0 million to current quarter revenues.
During the quarter ended September 30, 2016, the Avcorp Group recorded a loss from operations of $17,861,000, which includes costs incurred and yet to be recovered under the Hitco acquisition agreement, on $41.0 million in revenue; as compared to a $2.0 million operating loss on $21.6 million in revenue for the same quarter in the previous year.
Pre-Hitco acquisition operational events although indemnified under a service agreement and asset purchase agreement with Hitco and SGL, and on which Avcorp was required to assist, further adversely impacted operations and caused excessive personnel costs, and administrative and legal expenditures at ACF Avcorp’s Gardena facility during the third quarter. These costs have yet to be recovered and are included in all the costs for 2016.
The Company has taken decisive steps towards reducing costs at its Gardena facility by way of issuing 60 day WARN notifications on October 24, 2016, as part of a restructuring initiative at its Gardena California facility that will result in a workforce reduction of 75 permanent employees by December 31, 2016. This reduction is in addition to exiting 180 temporary workers during the last 90 days, which were added this year to support customers’ requirements arising from legacy product issues.
Over the course of 2016 and into the first part of 2017 certain of the smaller loss making contracts, assumed with the Hitco acquisition, are being wound down thereby eliminating the associated losses. What will be the remaining significant loss making contract has been the focus of a comprehensive Company initiative within which management has commenced discussions and planning with a major customer which would provide for an orderly and protected transition of this significant loss making contract from Avcorp’s Gardena facility. Contract revisions are in process which will ultimately improve Avcorp’s financial performance.
During the quarter ended September 30, 2016, cash flows from operating activities, excluding the impact of changes in non-cash working capital, utilized $17.4 million of cash as compared to utilizing $0.4 million of cash during the quarter ended September 30, 2015. Cash flows from operating activities were most significantly impacted as a result of operating losses incurred from the integration and productionization 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 pre-Hitco acquisition operational events.
The order backlog as at September 30, 2016 is $640.0 million, in consideration of attaining full award values; compared to $395.0 million as at June 30, 2016. The primary factor underlying the change in order backlog is an approximately $277.0 million increase in order backlog due to increases in production rates, contract renewals for various existing programs, and new contract awards.
The Company’s complete interim financial statements and management's discussion and analysis for the three and nine month periods ended September 30, 2016 can be found at www.avcorp.com
or at www.sedar.com