The Company will not make its scheduled interest payment on Senior
Subordinated Notes due 2014
MONTREAL, Nov. 14 /CNW Telbec/ - Mecachrome International Inc. (TSX: MCH)
today reported its results for the third quarter ended September 30, 2008 and
announced a net loss of (euro)20.9 million, due largely to reduced operating
margins as well as impairment charges and write-down of inventories recorded
in the third quarter of 2008.
In addition, the Company announced that, while it continues to report on
a going concern assumption, there are material uncertainties resulting from
current events and conditions that create substantial doubt about the
Company's ability to continue as a going concern as at September 30, 2008.
Due to recurring operating losses, reliance on non-operational sources of
financing to fund its operations, a highly leveraged balance sheet, delays
announced on several of its major aerospace programs and reduced volumes in
the automotive and motor sports business, the Company's ability to realize its
assets and discharge its liabilities depends on the success of its
restructuring plan initiated in the second quarter of 2008, the continued
support of shareholders, lenders, suppliers and clients and its ability to
access sufficient financing to allow the Company to meet its obligations on a
timely basis.
In light of the going concern uncertainty, the Company is reviewing and
evaluating its alternatives to improve its liquidity and financial position
and reduce its financing costs. These may take the form of a debt
restructuring, recapitalization, potential capital infusion, or other type of
transaction. To this end, the Company will obtain the advice and
recommendations of its financial advisor.
Mecachrome also today announced that, in the context of the ongoing
evaluation of various alternatives with respect to Mecachrome's financial
position, it will not make the scheduled interest payment, due November 15,
2008, on its 9% Senior Subordinated Notes due 2014 (the "Notes"). Under the
terms of the indenture governing the Notes, the Company benefits from a 30-day
grace period to make this interest payment in order to avoid event of default
consequences under the indenture. Subject to applicable grace periods, this
interest payment default could cause cross-defaults in certain of the
Company's other debt instruments, including its credit facilities.
Under its existing credit facilities, the Company has in place an undrawn
revolving credit facility in the amount of (euro)75.0 million, the
availability of which is subject to certain conditions and which becomes
unavailable upon the interest payment default described above. The
availability of this credit facility is further subject to compliance with
certain covenants, including specified financial covenants. The Company may
not be able to comply with some of these covenants in the foreseeable future.
In the event of such a breach, the lenders under the revolving credit facility
may choose not to provide the Company with access to funds under the revolving
credit facility and could seek to accelerate the repayment and termination of
the credit facilities. As at September 30, 2008, the Company had cash and cash
equivalents of (euro)8.1 million.
"We are actively pursuing all courses of action in order to secure
liquidity, including active discussions with clients, suppliers, existing and
potential new lenders as well as various other stakeholders. In addition, we
are renewing our focus on operational restructuring in order to continue to
reduce our cost structure, expand our margins and improve our cash flow
generation, while maintaining the excellence of our products and services, for
which we are known. We are committed to these improvements that will allow us
to realign our business model to reflect the current business environment"
stated Mr. Christian Jacqmin, President and Chief Executive Officer of
Mecachrome. The Company expects to pursue its operations as usual while it
explores its options. "We believe this is a step we must take to remain a
strong competitor and enable the Company to thrive in the long term. During
this process, a top priority will be to continue providing a high quality of
product and service to our clients, we will continue to maintain strict
financial discipline by controlling costs and tightly managing our cash".
In addition, Mecachrome announced today that Mr. Gérard Casella and Mr.
Romain Casella have resigned from the board of directors of the Company.
Based on information currently available, impairment and restructuring
charges were recorded by the Company in the third quarter of 2008. Additional
charges might be required in the future, depending on the outcome of the
Company's restructuring initiatives.Highlights for the third quarter ended September 30, 2008:
- Revenues reached (euro)71.9 million for the quarter and were up 4.3%
for the nine months period ended September 30, 2008 compared to
corresponding periods in 2007
- Adjusted EBITDA decreased to (euro)8.4 million
- Backlog remained at (euro)0.94 billion
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Financial Highlights
(expressed in thousands of euros, except shares and per share data)
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Three-month Nine-month
periods ended periods ended
September 30, September 30,
--------------------------------------------
2008 2007 2008 2007
--------------------------------------------
Revenues 71,881 70,989 229,877 220,360
Adjusted EBITDA 8,428 15,123 31,589 43,152
Adjusted EBIT 450 8,359 8,357 21,476
Net income (loss) (20,893) 924 (31,349) (3,784)
Adjusted net loss (6,995) 924 (10,612) (1,466)
Net income (loss)
per share - basic (0.88) 0.09 (1.32) (0.39)
Net income (loss)
per share - diluted (0.88) 0.08 (1.32) (0.39)
Cash flows from operations (11) 938 8,122 9,535
Basic weighted average
number of shares
outstanding (in thousands) 23,775 10,726 23,775 9,624
Diluted weighted average
number of shares
outstanding (in thousands) 23,775 11,987 23,775 9,624
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Results of Operations
Revenues
Consolidated revenues for the quarter were (euro)71.9 million, a slight
increase of (euro)0.9 million over the third quarter of 2007. Despite slowing
volume in the third quarter of 2008, our year-over-year revenues increased by
(euro)9.5 million or 4.3%. Manufacturing revenues increased by (euro)11.1
million for the year-to-date period, while engineering revenues decreased by
(euro)1.5 million. Both our European and North American operations showed
improvement in year-to-date revenues ((euro)9.0 million and (euro)0.5 million
increases, respectively).
Revenues from our aerospace business decreased by (euro)0.6 million
(-1.6%) and increased by (euro)13.7 million (13.6%) respectively for the three
and nine month periods ended September 30, 2008. The overall decrease in the
third quarter is mainly due to our North American operations which experienced
a strong third quarter in 2007 with the ramp-up of the B787 compared to no
deliveries in the same quarter in 2008. However, in our European operations,
the aerospace business continued to show increased volume compared to the
previous year, particularly on Airbus programs such as the A330-340 widebody,
the A380 as well as the BR710 for business jets and the Trent 500 & Trent 700
for the A330-340. Additional top-line growth was generated on Embraer's ERJ
170-190 program as well as Snecma's CFM56-7 engine for the Boeing 737 Next
Generation models.
Compared to the previous year, revenues from our automotive business
reached in the third quarter (euro)25.2 million (a (euro)3.0 million or 10.5%
decrease) and (euro)92.2 million (a (euro)7.9 million or 7.9% decrease) for
the nine months ended September 30, 2008. For the current year, our motor
sports business continues to be adversely impacted by the freeze in engine
development, thereby slowing-down our Formula 1-related revenue in the
quarter. Revenues from our commercial automobile line experienced modest
reductions in volume in the current year.
Year-to-date revenues from our industrial/energy business increased by
19.5% compared to prior year ((euro)22.9 million for 2008 compared to
(euro)19.2 million for 2007). The increased demand was the result of changes
at the client program level.
Gross Margin
Compared to the prior year, gross margin decreased by (euro)4.4 million in
the third quarter of 2008 and (euro)7.8 million for the year-to-date period.
As a percentage of revenue, our gross margin decreased from 28.0% in the first
nine months of 2007 to 23.5 % in the current year. Gross margin continues to
be adversely impacted by the increasing make-up of raw materials in our cost,
with lower returns generated on material pass-through than in our
manufacturing processes. The reduced gross margin returns have also been
affected by the greater portion of purchased parts, which are converted into
revenues at lower margins, as well as the slowdown in major aerospace (B787,
A380, A400M) and automotive (F1) programs.
Selling, general and administrative expenses
On a year-to-date basis, selling, general and administrative expenses
increased by (euro)3.8 million to (euro)22.3 million in 2008. The increase
over prior year is due in large part to foreign exchange gains recognized in
2007, which represent for (euro)2.5 million of the year-over-year change. For
the third quarter, foreign exchange gains account for (euro)1.4 million of the
(euro)2.3 million change in selling, general and administrative expenses.
Adjusted EBITDA
Adjusted EBITDA represents income before amortization, interest expense,
impairment of goodwill, special items, income taxes and minority interest. For
the third quarter, adjusted EBITDA decreased from (euro)15.1 million in 2007
to (euro)8.4 million in 2008. For the first nine months of 2008, adjusted
EBITDA decreased by (euro)11.6 million to (euro)31.6 million. Adjusted EBITDA
margins decreased from 19.6% in 2007 to 13.7% in the first nine months of
2008, due mainly to decreased gross margins in 2008 and foreign exchange gains
in 2007. Foreign exchange gains accounted for (euro)2.5 million of the
year-over-year change in adjusted EBITDA.
Amortization
For the first nine months of 2008, amortization increased from (euro)21.7
million in 2007 to (euro)23.2 million in the current year. Increased
investment in our European operations, primarily in the automotive segment,
has contributed to the year-over-year change. This increase was offset in part
by decreased amortization charges related to the change in estimate for our
buildings and manufacturing equipment. Amortization increased from (euro)6.8
million in the third quarter of 2007 to (euro)8.0 million in the current year.
Adjusted EBIT
Compared to prior year, adjusted EBIT, which represents adjusted EBITDA
less amortization, decreased by (euro)13.1 million for the first nine months
of 2008. This decrease is attributable to the decline in gross margins
discussed above, as well as increased amortization and selling, general and
administrative expenses.
Interest expense
Interest expense decreased from (euro)20.4 million in the first nine
months of 2007 to (euro)17.6 million in the current year. For the third
quarter of 2008, interest expense decreased by (euro)0.8 million to (euro)5.6
million in 2008. The improvement is due to a reduced debt level in 2008, as
well as the impact of reduced amortization of deferred financing fees
following the repayment of most of our Term B loan in the fourth quarter of
2007. Also, for the first nine months of 2007, the Company recognized an
expense of (euro)0.7 million related to the reduction in the fair value of the
embedded derivative on our senior notes. The improvement in year-over-year
interest expense was offset in part by increased levels of factoring in 2008.
Impairment of goodwill
During three-month and nine-month periods ended September 30th 2008, the
Company recognized an impairment loss of (euro)2.4 million, representing 100%
of the goodwill balance relating to its acquisition of Mecachrome Montreal
Nord in 2003. This impairment loss reflects the recurring losses and sustained
negative cash flows from operations of Mecachrome Montreal Nord.
Special Items
For the year-to-date period ended September 30, 2008, the Company recorded
a charge for Special Items of (euro)18.4 million. This charge is comprised of
the cancellation of all outstanding grants under the stock option and
restricted share unit plans (a non-cash charge of (euro)4.7 million), costs
associated with our restructuring plan ((euro)3.5 million) and provision for
asset impairment ((euro)2.1 million) and other asset write-downs ((euro)8.0
million). Additional costs associated with the restructuring plan or
impairment of assets will be recognized as they are incurred.
For the first nine months of 2007, the Company incurred Special Items of
(euro)2.3 million relating to its U.S operations and administrative functions.
Income taxes
Our income tax expense for the first nine months of 2008 was (euro)1.4
million compared to a future income tax expense of (euro)2.5 million for the
same period last year. For the third quarter of 2008, our income tax expense
was (euro)1.8 million compared to an expense of (euro)1.0 million for the same
period last year. Our income tax provision is impacted significantly by the
non-recognition of future tax benefits associated with our operating losses.
Net (loss) income
Net loss for the third quarter of 2008 was (euro)20.9 million compared to
a net income of (euro)0.9 million in the third quarter of 2007. The change is
due largely to reduced operating margins in the current year as well as asset
impairment charges and costs associated with our restructuring plan. Net loss
for the first nine months of 2008 was (euro)31.3 million compared to a net
loss of (euro)3.8 million for the same period last year.
SELECTED FINANCIAL INFORMATION
A summary of Mecachrome's consolidated interim financial results as at,
and for the periods ended September 30, 2008 and 2007 is included below. The
full interim report and Management's Discussion and Analysis can be found on
www.mecachrome.com or on www.sedar.com.
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Selected Financial Information
Unaudited
(in thousands of euros)
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Three-month periods ended Nine-month periods ended
September 30, September 30,
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Varia- Varia-
2008 2007 tion 2008 2007 tion
-------------------------- --------------------------
Revenues 71,881 70,989 892 229,877 220,360 9,517
Cost of sales 55,344 50,042 5,302 175,938 158,671 17,267
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Gross margin 16,537 20,947 (4,410) 53,939 61,689 (7,750)
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23.0% 29.5% 23.5% 28.0%
Selling, general
and administrative
expenses 8,109 5,824 2,285 22,350 18,537 3,813
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Adjusted EBITDA 8,428 15,123 (6,695) 31,589 43,152 (11,563)
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11.7% 21.3% 13.7% 19.6%
Amortization 7,978 6,764 1,214 23,232 21,676 1,556
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Adjusted EBIT 450 8,359 (7,909) 8,357 21,476 (13,119)
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Interest expense 5,607 6,419 (812) 17,551 20,401 (2,850)
Impairment of
goodwill 2,355 2,355 2,355 2,355
Special items 11,543 11,543 18,382 2,318 16,064
(Loss) Income
before income
taxes and
minority interest (19,055) 1,940 (20,995) (29,931) (1,243) (28,688)
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Income taxes
Current 86 457 (371) 86 1,545 (1,459)
Future 1,756 541 1,215 1,336 972 364
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1,842 998 844 1,422 2,517 (1,095)
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Income (loss)
before minority
interest (20,897) 942 (21,839) (31,353) (3,760) (27,593)
Minority interest 4 (18) 22 4 (24) 28
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Net (loss) income (20,893) 924 (21,817) (31,349) (3,784) (27,565)
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Other Financial
Information
Cash and cash
equivalents 8,109
Total long-term
debt 201,939
Shareholders'
equity 72,291
Cash flows from
operating
activities (11) 938 8,112 9,535
Net additions to
Property, plant
and equipment (7,775) (4,563) (23,634) (21,369)The Company's external auditors were engaged to perform a review of the
interim consolidated financial statements under CICA Section 7050. Given the
material uncertainties affecting the Company's ability to operate as a going
concern, as described in Note 1 of the interim consolidated financial
statements, and the potential material adjustments that could be required, the
Company's external auditors have not been able to complete their engagement.
CONFERENCE CALL
The Company will not hold a conference call to discuss its 2008 third
quarter results.
About Mecachrome International Inc.
Mecachrome is a leader in the design, engineering, manufacture and
assembly of complex precision-engineered components for aircraft and
automotive applications, including aerostructural and aircraft engine
components, high-end automobile engine components and motor racing engines.
Since 1937, Mecachrome has established a significant presence and global
reputation in certain high-precision sectors of the aerospace, automotive and
industrial equipment industries, providing services primarily to original
equipment manufacturers. The company currently operates 11 state-of-the-art
facilities, principally in France and Canada.
Forward-looking statements
All statements, other than statements of historical facts, included in
this news release are forward-looking statements or contain forward-looking
information (within the meaning of the Québec Securities Act and the Ontario
Securities Act). Although we believe that the expectations reflected in these
forward-looking statements and forward-looking information are reasonable,
these statements involve risks and uncertainties and are not guarantees of
future performance. We can give no assurance that these estimates and
expectations will prove to have been correct, and actual outcomes and results
may differ materially from what is expressed, implied or projected in such
forward-looking statements and forward-looking information. There are a number
of important risks and uncertainties that could, and often do, cause our
actual results to differ materially from those indicated or implied by
forward-looking statements and forward-looking information, including the
risks and uncertainties discussed in Mecachrome's Annual Information Form for
the year ended December 31, 2007. Given the uncertainty of forward-looking
statements and forward-looking information, investors are cautioned not to
place undue reliance on these statements and information. The forward-looking
statements and forward-looking information speak only as of the date made, and
Mecachrome expressly disclaims any intention or obligation to update or revise
any forward-looking statements or forward looking information, whether as a
result of new information, future events or otherwise, except as may be
required by applicable law.
Note to readers: The consolidated interim financial statements and
Management's Discussion & Analysis of financial results are available on
Mecachrome's website at www.mecachrome.com or on www.sedar.com.
For further information: Jean-François Villion, Office: (514) 843-2396,
Mobile: (514) 951-0993, jfvillion@national.ca
