- Record revenue and EBITDA in fourth quarter and fiscal 2007
- Company maintains expectations for fiscal 2008, subject to timing and
allocation of U.S. defense budget
- Innovation and persistent global threat of improvised explosive
devices (IEDs) likely to drive sustained opportunities in counter-IED
OTTAWA, Dec. 18 /CNW Telbec/ - Allen-Vanguard Corporation
("Allen-Vanguard" or the "Company") (TSX:VRS) today announced financial
results for the fourth quarter ("Q4") and fiscal 2007 ("FY 07") ended
September 30, 2007, and provided a general update to investors. All amounts in
Canadian dollars unless otherwise noted.
FY 07 and Q4 financial highlights
The Company reported record revenue and EBITDA in Q4 and for FY 07
- Q4 revenue was $50.0 million, with EBITDA of $8.4 million (net of a one
time inventory charge of $1.2 million), up from revenue of
$20.0 million and EBITDA of $2.9 million in Q4 of FY 06.
- Revenue and EBITDA for FY 07 was $96.2 million and $10.0 million,
respectively, up from $56.8 million and $4.3 million, respectively, in
- Results included a revenue contribution of $17.9 million from the
acquisition of Med-Eng Inc. ("Med-Eng"), acquired September 17, 2007,
for the final thirteen days of the fiscal year.
- Charges in the fourth quarter for financing, transaction and
amortization costs related to the acquisition of Med-Eng totaled
Commenting on the new scale of the business following the Med-Eng
acquisition, Mr. David E. Luxton, President and CEO of Allen-Vanguard said,
"Allen-Vanguard is now a global leader in the counter-IED market, offering a
comprehensive suite of advanced solutions to counter any kind of hazardous
device. Although order flow can and does vary considerably on a quarterly
basis, the pro forma revenue and EBITDA of our combined business, assuming
that Allen-Vanguard had owned Med-Eng for the entire Q4 period, would have
been approximately $138 million and $36 million, respectively."
Fiscal 2008 outlook
"We entered fiscal 2008 with a backlog of $135 million and good visibility
in particular on additional large requirements for electronic counter measures
("ECM" or "jammers")," continued Mr. Luxton. The Company stated that it
expects revenue over the first half of fiscal 2008 to track in the $250
million range, and similar revenue is anticipated in the second half, provided
that U.S. defense budgets and allocations are approved in time to refresh
order backlog in the Company's second quarter ending March 31, 2008. In its
update report of October 25, 2007 on the integration of Med-Eng, the Company
reported order intake of $60 million in the first three weeks of fiscal 2008.
"We also expect to see substantially improved EBITDA margins as the
business scales" added David Luxton. "At an annual revenue level of
$500 million, EBITDA margins are expected to run at approximately 33%, which
should translate into very significant cash flow." The Company plans that much
of its excess cash flow in fiscal 2008 will be applied to the reduction of
long-term debt, which stood at approximately $262.5 million at September 30,
Longer term outlook
"Despite some recent abatement in IED attacks in Iraq, forecasts by
military and homeland security agencies rank IEDs in various evolving forms as
the top hazard now and long into the future, terming them a 'persistent global
threat'," said David Luxton. "For this reason we continue to feel confident in
the sustainable, long-term potential of the counter-IED market, where we are a
global leader in our category in terms of both size and technology."
The Company commented on the various growth drivers in each of its
business segments: Electronic Systems; Personal Protection Systems; and
Electronic Systems ("ES")
Allen-Vanguard's largest business segment, Electronic Systems, which today
is primarily a jammer business, operates in a global market that is expected
to continue to grow as these products become a ubiquitous feature of military
and homeland security operations. "This expanding, lucrative market has been
and will continue to be highly competitive, differentiated primarily by
technology as customers upgrade standards of performance and reliability under
harsh field conditions in a continuous upward spiral," said Mr. Luxton The
Company added that it continues to invest significantly in R&D and is rapidly
evolving its technology into a next generation system. It expects that this
new system will far surpass current standards,, and will incorporate multiple
electronic warfare ("EW") applications, including jamming, in a single
platform. "While government funded R&D contracts like CREW3 attract attention,
actual customer buying has ultimately been driven by the best available
equipment," commented Mr. Luxton. "We don't expect that to change.
Furthermore, we believe that independent technology advancements are outpacing
the timetable of government sponsored R&D."
The Company added that the overall size and timing of jammer procurements
in the U.S. over the next several years will also be affected by defense
budget levels and allocations, possible troop reductions or redeployments, and
the rate of equipment attrition and replacement. "Troop reductions could mean
an accelerated and larger Symphony program to equip indigenous forces with
jammers, offsetting the possibility of reduced urgency in rolling out new
jammers for U.S. troops," said David Luxton. "A big factor is whether any
wind-down in the Iraq conflict results in the U.S. leaving behind much of its
worn equipment, in which case we could see several years of significant
're-set' expenditure to replace expended inventories of equipment such as
vehicles and older jammers. As many industry analysts have commented,
post-conflict periods have often entailed major re-set spending." The Company
stated that its base line expectation for the U.S. jammer market is a customer
commitment to sustaining of the existing Chameleon jammer program through
2013, and ramp-up and roll-out of the Symphony program. Allen-Vanguard is
partnered with a division of General Dynamics Corporation for the Chameleon
program, and with a division of Lockheed Martin Corporation ("LM") for the
Outside the U.S., Allen-Vanguard jammers have become the equipment of
choice among key Commonwealth countries, and the Company is aggressively
pursuing new opportunities in these and other countries as they expand,
modernize and upgrade their capabilities. Certain major program opportunities,
such as in the U.K., have been briefed to industry. Others are still in the
formative stages and will evolve over the next several years as the
international market emulates U.S. capabilities.
The Company believes that an important technology factor in markets
globally will be the need for harmonized systems among the forces of different
countries, and the requirement to 'de-conflict' with other electronic
platforms such as communications equipment, EW systems and 'smart' soldier
systems. Allen-Vanguard is favourably positioned to exploit its technical
capability to achieve this, and to extend it to advantage across its range of
personal protection and other products for compatibility and interoperability
within the emerging 'net-centric' environment.
Personal Protection Systems ("PPS")
The global market for the Company's traditional PPS business, which today
accounts for about 25% of revenue, is also expected to continue growing,
driven by the evolving threat of IEDs including bio-chemical and radiological
threats. "This market is also changing," said David Luxton. "Traditionally
'dumb' product platforms like protective clothing systems and robots are
evolving into 'smart' systems of sensors and radio frequency ("RF")
capability, all of which must operate within a net-centric and harsh RF
environment. "We feel particularly well positioned over the long term as the
only company that designs and manufactures a complete product set core to the
counter-IED mission: bomb suits, robots and jammers," said David Luxton.
The Company noted that it has now brought to market an integral bomb suit
helmet communications system that harmonizes with its jammers. Its Med-Eng
branded bomb suit and helmet is the dominant product in the bomb disposal
market globally. As well, the Company reported that it has been selected by a
major military organization to supply a first quantity of new sensor systems
on soldier helmets to detect, analyse and record head trauma from explosive
events. "This kind of development marks the evolution of 'smart' soldier
systems," said David Luxton. "We expect the market for smart soldier system
products to unfold gradually, but the long-term market potential is enormous.
The combination of our specialized electronics expertise and deep history in
personal protection systems positions Allen-Vanguard very favourably in this
Counter-IED Services ("Services")
"We are very pleased at the progress of Hazard Management Solutions
("HMS")," said David Luxton. "We foresee continued expansion in this segment
of our business for the long term, driven by market growth in outsourced
counter-IED intelligence and training services." The Company noted that HMS,
acquired in June, 2007, is a key differentiator. "Global leadership in
counter-IED solutions means providing the customer with sustainable capability
against evolving threats," added Mr. Luxton. "By combining counter-IED
intelligence and training with our advanced protective products we are
uniquely able to deliver true mission capability."
HMS presently accounts for approximately ten percent of Allen-Vanguard
revenues and is experiencing steep growth as it enlarges its incumbency in
key, long-term counter-IED training programs for U.S. and NATO special forces,
and adds to its customer base in the U.S. homeland security market.
"The acquisition of Med-Eng on September 17, 2007, was of course
transformational in terms of scale, global leadership positioning and as a
platform for sustainable long term expansion," said David Luxton.
Med-Eng and Allen-Vanguard had long been in similar businesses, with
comparable business segments and complementary product lines. The combination
into one business created the world's leading company offering equipment and
services core to the mission of countering hazardous devices, whether
explosive, bio-chemical or radiological.
On October 25, 2007 Allen-Vanguard announced its plan to integrate
Med-Eng. "Integration has been a remarkably straightforward process and is
largely completed," said Mr. Luxton. The Company stated that, as with any
growing enterprise, its organizational structure will continue to evolve to
remain aligned with market strategy. Meanwhile, the Company is satisfied that
its business platform as now integrated has substantially deepened its
management bench strength with a pool of talented technologists and executives
capable of executing a global build-out of the business.
Partnerships, alliances, teaming agreements
"We expect that our build-out from here will include expanded
partnerships, alliances and teaming agreements with prime contractors and
system integrators," said David Luxton. "Our scale and capabilities have hit
their radar screen, and they manage many of the major counter-IED and CBRN
programs for military and homeland security customers on an outsourced basis,
programs where Allen-Vanguard can provide capability across its business
lines." The Company said that it expects to begin announcing agreements early
in calendar 2008.
US listing and research following
The Company confirmed that it has engaged professional advisors to assist
with transition to U.S. GAAP, and is considering a public listing on a
U.S. exchange. "As well, we have received expressions of interest to initiate
expanded research analyst coverage of Allen-Vanguard, which we expect could
begin in the second quarter of fiscal 2008," said David Luxton.
Financial details of Q4 and fiscal 2007
- Allen-Vanguard's revenue was $50.0 million in Q4 2007 and $96.2 million
in FY 2007, compared to $20.0 million in Q4 2006 and $56.8 million in
FY 2006. The Q4 2007 figure includes revenue from Med-Eng of
- Revenue from ES products represented 64% and 55% of total Q4 2007 and
FY 2007 revenue respectively.
- Revenue from PPS products accounted for 19% of total Q4 2007 revenue
and 34% of total FY 2007 revenue. Approximately 24% of Q4 2007 PPS
revenue was attributable to sales of Med-Eng Systems ballistic
protection and cooling systems.
- Revenue from Services accounted for 15% of Q4 2007 revenue, almost
entirely generated by the Company's HMS subsidiary acquired in June
- Revenue generated in North America totaled $45.1 million in Q4 2007 and
$69.8 million in FY 2007. Revenue generated outside of North America
totaled $5.0 million in Q4 2007 and $26.4 million in FY 2007.
- Gross margin was 39% in Q4 2007 and 42% in FY 2007, compared to 43% in
Q4 2006 and 42% in FY 2006. ES margin was 43% and 47% in Q4 2007 and
FY 2007 respectively, compared to the prior year comparatives of 65%
and 60%. PPS margin was 27% in Q4 2007 and 37% in FY 2007, compared to
24% in Q4 2006 and 27% in FY 2006. Q4 2007 margin was adversely
affected by a write-down of Ireland robot inventories of approximately
$1.2 million. Services margin was 32% in Q4 2007, contributing about
22% of the year over year growth in overall gross profit.
- Selling and administration expenses were $9.3 million in Q4 2007 and
$24.6 million in FY 2007, compared to $4.6 million in Q4 2006 and
$16.1 million in FY 2006. Med-Eng selling and administration was
$1.1 million in Q4 2007, and management bonuses in connection with the
acquisition of Med-Eng totaled approximately $2.2 million.
- Research and development expenses, net of grants received and
investment tax credits, were $1.7 million in Q4 2007 and $5.6 million
in FY 2007, compared to $1.2 million in Q4 2006 and $3.4 million in
Acquisition and financing related charges and amortization
- The Company incurred charges and amortization of $29.8 million in
Q4 2007 related to the acquisitions and financings of Med-Eng and HMS.
- EBITDA was $8.4 million in Q4 2007 and $10.0 in FY 2007, compared to
$2.9 million in Q4 2006 and $4.3 million in FY 2006.
- The net provision for recovery of income taxes was $5.4 million and
$5.9 million in Q4 2007 and FY 2007 respectively, compared to income
tax provisions of $0.7 million in Q4 2006 and $1.5 million in FY 2006.
The Company's basic income tax rate was approximately 36% in FY 2007.
- The net loss for Q4 2007 was $10.6 million or $0.15 per share, compared
to net earnings of $1.7 million or $0.04 per share in Q4 2006. The net
loss for FY 2007 was $14.0 million or $0.26 per share, compared to net
earnings of $0.0 million or $0.00 per share in FY 2006.
Liquidity, cash flow and capital resources
- Allen-Vanguard's cash and short-term investments, net of bank
indebtedness, at the end of Q4 2007 amounted to $20.4 million, an
increase of $17.1 million from the beginning of Q4 2007 and
$14.7 million from the beginning of FY 2007. Working capital totaled
$24.4 million at the end of Q4 2007, a reduction of $33.5 million from
the beginning of Q4 2007 and an increase of $8.3 million from the
beginning of FY 2007.
- The acquisitions of Med-Eng and HMS used cash of $629.0 million in
Q4 2007 and $643.3 million in FY 2007. Cash provided by financing
activities was $632.8 million in Q4 2007 and $706.3 million in FY 2007,
with almost all of the Q4 2007 financing raised in connection with the
- Allen-Vanguard had common shares outstanding of approximately
105.3 million and fully diluted common shares outstanding of
approximately 113.6 million at the end of Q4 2007.
Investor and analyst call and webcast
The Company will be hosting an investor and analyst conference call and
webcast as follows:
Date: Wednesday, December 19, 2007
Time: 9:00 a.m. ET
Dial-in numbers: 1-800-732 6179
For those unable to listen to the call live, a replay will be available
for a two week period beginning at 11:30 a.m. on December 19, 2007. The replay
phone number is 877-289-8525 and the access code is 21256992 (pound key).
Allen-Vanguard Corporation supports the mission of military and homeland
security forces around the world with leading proprietary solutions for
protection and counter-measures against hazardous devices of all kinds,
whether chemical, biological, radiological or explosive (CBRNE), including
improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs).
Allen-Vanguard equipment is in service in more than 120 countries. Products
include Electronic Counter-Measures ("ECM") equipment for jamming remote
detonation of terrorist devices, specialty security equipment for Explosive
Ordnance Disposal ("EOD"), remote intervention robots for hazardous
applications, and personal protective wear for use in dealing with explosive
and bio-chemical agents. Allen-Vanguard is the developer and/or sole,
worldwide licensee of proprietary technologies such as the Med-Eng bomb suit,
the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal
Containment System and CASCAD Foam system for blast mitigation and
decontamination of bio-chemical warfare agents. Professional services
encompass counter-IED intelligence, training and advisory services, including
the Triton(TM) Report on terrorist incidents around the world. The Company
operates globally through its wholly-owned subsidiaries under the names
"Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office
operations are located in Ottawa, Ontario, Canada, with manufacturing
operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York;
Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services
operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia,
plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's
shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
Forward looking statements
This press release may contain forward-looking statements, which reflect
Allen-Vanguard's current expectations regarding future events, its strategy,
expected performance and condition. Forward-looking statements include
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"plans," "believes," "estimates" or negative versions thereof and similar
expressions. In addition, any statement that may be made concerning future
performance, strategies or prospects, and possible future acquisitions or
dispositions, is also a forward-looking statement. Forward-looking statements
are based on current expectations and projections about future events and are
inherently subject to, among other things, risks, uncertainties and
assumptions about the Company and economic factors. Forward-looking statements
are not promises or guarantees of future performance, and actual events and
results could differ materially from those expressed or implied in any
forward-looking statements made about the Company. Any number of important
factors could contribute to these digressions, including, but not limited to,
general economic, political and market factors in North America and
internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings, and
catastrophic events. We stress that the above-mentioned list of important
factors is not exhaustive. We encourage you to consider these and other
factors carefully before making any investment decision and we urge you to
avoid placing undue reliance on forward-looking statements. Further, you
should be aware that the Company disclaims any obligation to publicly update
or revise any such forward-looking statements whether as a result of new
information, future events or otherwise, prior to the release of the next
Management Discussion and Analysis to be released by the Company or except as
required by law.
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our
website at www.allen-vanguard.com.
For further information:
For further information: David Luxton, (613) 288-5555