Avcorp Announces 2016 Annual and 2017 First Quarter Financial Results

VANCOUVER, June 29, 2017 /CNW/ - 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).

(signed)

PETER GEORGE
CHIEF EXECUTIVE OFFICER
AVCORP GROUP

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.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION




(expressed in thousands of Canadian dollars)








AS AT DECEMBER 31

2016


2015
restated

ASSETS




Current assets




Cash

$3,960


$14,484

Accounts receivable

26,262


30,124

Consideration receivable

12,251


26,624

Inventories

44,259


35,502

Prepayments and other assets

4,144


1,563


90,876


108,297

Non-current assets




Prepaid rent and security

146


449

Consideration receivable

-


12,096

Development costs

5,200


3,187

Property, plant and equipment

31,930


29,640

Intangibles

4,887


6,422

Total assets

133,039


160,091





LIABILITIES AND EQUITY




Current liabilities




Bank indebtedness

17,111


-

Accounts payable and accrued liabilities

32,122


28,107

Current portion of term debt

6,283


240

Customer advance

8,034


8,282

Deferred program revenues

13,861


4,924

Unfavourable contracts liability

18,904


35,782


96,315


77,335

Non-current liabilities




Deferred gain and lease inducement

246


391

Term debt

1,646


1,646

Customer advance

3,539


10,246

Unfavourable contracts liability

38,065


63,689

Deferred program revenues

111


-


139,922


153,307

(Deficiency) Equity




Capital stock

80,302


80,158

Contributed surplus

6,744


4,453

Accumulated other comprehensive loss

(138)


-

Accumulated deficit

(93,791)


(77,827)


(6,883)


6,784

Total liabilities and (deficiency) equity

133,039


160,091

 

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(expressed in thousands of Canadian dollars, except number of shares and per share amounts)






FOR THE YEAR ENDED DECEMBER 31


2016


2015
restated






Revenues


$183,707


$80,416






Cost of sales


175,333


72,279






Gross profit


8,374


8,137






Administrative and general expenses


24,429


19,278

Office equipment depreciation


350


482






Operating Loss


(16,405)


(11,623)






Finance costs – net


339


856

Foreign exchange (gain)


(717)


(323)

Net (gain) on sale of equipment


(63)


(2)






Loss before income tax


(15,964)


(12,154)






Income tax expense


-


-






Net loss for the year


(15,964)


(12,154)






Other comprehensive loss


(138)


-






Net loss and total comprehensive loss for the year


(16,102)


(12,154)






Loss per share:





Basic and diluted loss per common share


(0.05)


(0.04)






Basic and diluted weighted average number of shares
outstanding (000's)


306,611


302,889

 

CONSOLIDATED STATEMENTS OF CASH FLOWS





(expressed in thousands of Canadian dollars)










FOR THE YEAR ENDED DECEMBER 31


2016


2015

restated






Cash flows from (used in) operating activities





Net loss for the year


$(15,964)


$(12,154)


Adjustment for items not affecting cash:







Interest expense


322


210



Depreciation


3,915


1,680



Development cost amortization


604


1,521



Intangible assets amortization


1,325


-



Non-cash financing cost accretion


31


485



Gain on disposal of equipment


(15)


-



Provision for unfavourable contracts


(38,937)


(356)



Provision for loss-making contracts


(77)


(77)



Provision for doubtful accounts


189


-



Provision for obsolete inventory


(8,653)


245



Stock based compensation


1,158


930



Unrealized foreign exchange


(2,860)


(461)



Other items


(129)


(124)


Cash flows (used in) operating activities before
changes in non-cash working capital


(59,091)


(8,101)


Changes in non-cash working capital







Accounts receivable


7,129


(6,063)



Inventories


(614)


(2,902)



Prepayments and other assets


(4,297)


(135)



Prepaid security


303


(301)



Accounts payable and accrued liabilities


6,705


1,347



Customer advance payable


(6,955)


(425)



Deferred program revenues


6,473


(2,963)






Net cash (used in) operating activities


(50,347)


(19,543)






Cash flows from (used in) investing activities





Cash received upon business acquisition


-


32,826

Proceeds from consideration receivable


22,429


-

Proceeds from sale of equipment


60


-

Purchase of equipment


(5,129)


(959)

Payments relating to development costs and tooling


(2,617)


(1,405)






Net cash from (used in) investing activities


14,743


30,462






Cash flows from (used in) financing activities





Increase in bank indebtedness


17,111


-

Payment of interest


(184)


(169)

Proceeds from term debt


6,727


5,882

Proceeds from issuance of common shares


113


146

Repayment of term debt


(240)


(5,391)






Net cash from financing activities


23,527


468






Net (decrease) increase in cash


(12,077)


11,387






Net foreign exchange difference


1,553


(62)






Cash - Beginning of the year


14,484


3,159






Cash - End of the year


3,960


14,484

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(expressed in thousands of Canadian dollars, except number of shares)








Capital Stock






Number of
Shares

Amount

Contributed
Surplus

Deficit

Accumulated
Other
Comprehensive
Income

Total Equity
(Deficiency)








Balance December 31, 2014

302,633,184

$79,921

$3,129

$(65,673)

$ -

$17,377








Issue of common shares

2,922,000

146

-

-

-

146








Stock based compensation expense

-

-

930

-

-

930








Transfer to share capital on exercise of stock options

-

91

(91)

-

-

-








Fair value of warrants issued

-

-

485

-

-

485








Net loss for the year – restated

-

-

-

(12,154)

-

(12,154)








Balance December 31, 2015 – restated

305,555,184

80,158

4,453

(77,827)

-

6,784








Issue of Common Shares

1,586,000

113

-

-

-

113








Stock-based compensation expense

-

-

1,578

-

-

1,578








Forfeiture of issued stock options

-

-

(420)

-

-

(420)








Transfer to share capital on exercise of stock options

-

31

(31)

-

-

-








Fair value of warrants issued

-

-

1,164

-

-

1,164








Unrealized currency gain on translation for the year

-

-

-

-

(138)

(138)








Net loss for the year

-

-

-

(15,964)

-

(15,964)








Balance December 31, 2016

307,141,184

80,302

6,744

(93,791)

(138)

(6,883)

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited, expressed in thousands of Canadian dollars)









March 31, 2017

December 31, 2016

ASSETS





Current assets





Cash



$4,220

$3,960

Accounts receivable



21,522

26,262

Consideration receivable



12,263

12,251

Inventories



41,311

44,259

Prepayments and other assets



5,045

4,144




84,361

90,876

Non-current assets





Prepaid rent and security



146

146

Development costs



5,466

5,200

Property, plant and equipment



31,466

31,930

Intangibles



4,508

4,887

Total assets



125,947

133,039






LIABILITIES AND EQUITY





Current liabilities





Bank indebtedness



17,631

17,111

Accounts payable and accrued liabilities



38,022

32,122

Current portion of term debt



8,210

6,283

Customer advance



7,958

8,034

Deferred program revenues



12,144

13,861

Unfavourable contracts liability



18,434

18,904




102,399

96,315

Non-current liabilities





Deferred gain and lease inducement



209

246

Term debt



1,617

1,646

Customer advance



2,410

3,539

Unfavourable contracts liability



35,342

38,065

Deferred program revenues



81

111




142,058

139,922

(Deficiency) Equity





Capital stock



80,302

80,302

Contributed surplus



6,961

6,744

Accumulated other comprehensive loss



(136)

(138)

Accumulated deficit



(103,238)

(93,791)




(16,111)

(6,883)

Total liabilities and (deficiency) equity



125,947

133,039

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(unaudited, expressed in thousands of Canadian dollars, except number of shares
and per share amounts)






FOR THE QUARTER ENDED MARCH 31


2017


2016

restated






Revenues


$38,568


$39,941






Cost of sales


41,460


39,331






Gross (loss) profit


(2,892)


610






Administrative and general expenses


5,655


7,953

Office equipment depreciation


70


225






Operating Loss


(8,617)


(7,568)






Finance costs – net


776


12

Foreign exchange loss (gain)


39


(270)

Net loss (gain) on sale of equipment


15


(50)






Loss before income tax


(9,447)


(7,260)






Income tax expense


-


-






Net loss for the period


(9,447)


(7,260)






Other comprehensive loss (income)


2


(487)






Net loss and total comprehensive loss for the period


(9,445)


(6,773)






Loss per share:





Basic and diluted loss per common share


(0.03)


(0.02)






Basic and diluted weighted average number of shares
outstanding (000's)


307,141


305,555

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, expressed in thousands of Canadian dollars)










FOR THE QUARTER ENDED MARCH 31


2017


2016

Restated






Cash flows from (used in) operating activities






Net loss for the period


$(9,447)


$(7,260)


Adjustment for items not affecting cash:







Interest expense


245


20



Depreciation


1,014


860



Development cost amortization


397


153



Intangible assets amortization


331


369



Non-cash financing cost accretion


536


-



Gain on disposal of equipment


15


(50)



Provision for unfavourable contracts


(2,636)


(6,889)



Provision for doubtful accounts


-


204



Provision for obsolete inventory


85


31



Stock based compensation


216


(187)



Unrealized foreign exchange


(442)


-



Other items


(17)


(33)


Cash flows (used in) operating activities before changes
in non-cash working capital


(9,703)


(12,782)


Changes in non-cash working capital







Accounts receivable


3,914


(2,779)



Inventories


2,626


(2,954)



Prepayments and other assets


(354)


(53)



Accounts payable and accrued liabilities


6,103


(1,118)



Customer advance payable


(1,205)


(1,136)



Deferred program revenues


(1,757)


542






Net cash (used in) operating activities


(376)


(20,280)






Cash flows (used in) from investing activities





Proceeds from consideration receivable


-


19,551

Proceeds from sale of equipment


20


50

Purchase of equipment


(825)


(1,482)

Payments relating to development costs and tooling


(663)


(1,044)






Net cash (used in) from investing activities


(1,468)


17,075






Cash flows from (used in) financing activities





Increase in bank indebtedness


520


-

Payment of interest


(125)


(8)

Proceeds from term debt


1,213


31

Repayment of term debt


(39)


(105)






Net cash from (used in) financing activities


1,569


(82)






Net (decrease) in cash


(275)


(3,287)






Net foreign exchange difference


535


(704)






Cash - Beginning of the period


3,960


14,484






Cash - End of the period


4,220


10,493

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(unaudited, expressed in thousands of Canadian dollars, except number of shares)








Capital Stock






Number of
Shares

Amount

Contributed
Surplus

Deficit

Accumulated
Other
Comprehensive
Income

Total
Deficiency








Balance December 31, 2015

305,555,184

80,158

4,453

(77,827)

-

6,784








Stock-based compensation expense

-

-

233

-

-

233








Forfeiture of issued stock options

-

-

(420)

-

-

(420)








Unrealized currency gain on translation for the period

-

-

-

-

487

487








Net loss for the period

-

-

-

(7,260)

-

(7,260)








Balance March 31, 2016 – restated

305,555,184

80,158

4,266

(85,087)

487

(176)








Balance December 31, 2016

307,141,184

80,302

6,744

(93,791)

(138)

(6,883)








Stock-based compensation expense

-

-

217

-

-

217








Unrealized currency gain on translation for the period

-

-

-

-

2

2








Net loss for the period

-

-

-

(9,447)

-

(9,590)








Balance March 31, 2017

307,141,184

80,302

6,961

(103,238)

(136)

(16,111)

 

SOURCE Avcorp Industries Inc.

For further information: Sandi DiPrimo, Investor Relations Contact, 604-587-4938

RELATED LINKS
http://www.avcorp.com

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