CAMBRIDGE, ON, Feb. 19, 2015 /CNW/ - COM DEV International Ltd.
(TSX:CDV), a leading manufacturer of space hardware subsystems,
announced today that the rapid and dramatic weakening of the Canadian
dollar against its U.S. counterpart in January had negatively impacted
the Company's hedge portfolio. Similar to most other global companies
with currency exposures, COM DEV manages its currency risk through the
use of a hedging strategy. That strategy will be the subject of a
review by the Company's Board of Directors to ensure it continues to be
appropriate in light of these recent events. With approximately 30
percent of total Company revenues recognized in U.S. dollars, the
objective of that strategy is to protect the Company against weakness
in the value of the U.S. dollar against the Canadian dollar. The
recent weakness in the value of the Canadian dollar results in an
IFRS-based reported loss on that hedge strategy in the first quarter of
fiscal 2015; however, there is no immediate cash flow impact from these
hedges. Further, any cash impact from the hedges is expected to be
more than offset over future months with lifts in revenue and gross
profit that would result from continued weakness in the Canadian
The Company had expected to see one-time impacts in its fiscal 2015 Q1
results related to restructuring ($3.1 million) and wind up of
operations ($3.5 million) associated with its U.S. operations in El
Segundo, as well as transaction costs ($1.5 million) associated with
its December 31st acquisition of MESL Microwave Ltd.
Unexpected however, was the rapid erosion of crude oil prices, and the
Bank of Canada decision to reduce its overnight lending rate. These
two January events served to send the Canadian dollar into a slide
against the U.S. dollar, to levels well below where all five major
Canadian banks expected the dollar to trade for the next 12 months.
The weakening of the Canadian dollar against the U.S. dollar, while
benefiting the translated value of the Company's revenues in Q1 by
approximately $4 million, also led to an unrealized valuation loss on
the Company's hedge portfolio due the mechanics of mark to market
valuation calculations required under accounting standards. The
unrealized valuation loss resulted in a foreign exchange loss in the
quarter, estimated between $9.5 and $10 million, based on the spot rate
at the time of the valuation of 1.2711.
It is important to note that over 30 percent of the Company's total
backlog at the end of October was denominated in U.S. dollars, and that
trend is expected to persist over time. Based on historical revenue
levels, roughly $60 million in U.S. dollar revenues would therefore be
expected each year. While the benefit of U.S. dollar revenue will only
be realized month by month, the unrealized loss on the hedge portfolio
- which plays out over the next 21 months - must be recognized all at
once. If exchange rates were to remain constant over that 21 month
period, the benefit of those exchange rates on revenues would be
expected to more than offset the unrealized loss on the Company's hedge
portfolio that is reflected all in Q1.
To the extent the Company can mitigate these settlements, and/or to the
extent the Canadian dollar strengthens versus the U.S. dollar, the
unrealized losses seen in Q1 may be reduced over time. At the time of
issuing this release, the spot rate has moved back from the valuation
rate of 1.2711 to spot rates in the range of 1.24 to 1.25. The
relative strengthening this represents would result in a partial
reversal of the unrealized loss if the Company were reporting its
results today rather than as at the end of January.
About COM DEV
COM DEV International Ltd. (www.comdev.ca) is a leading global provider of space hardware and services. The
company has a staff of 1,100, annual revenues of $208 million, and
facilities in Canada, the United Kingdom the United States, India, and
China. COM DEV designs manufactures, and integrates advanced products,
subsystems and microsatellites that are sold to major satellite prime
contractors, government agencies and satellite operators, for use in
communications, space science, remote sensing and defence applications.
The company has won contracts to supply its equipment on over 900
spacecraft. COM DEV's majority-owned subsidiary, exactEarth Ltd.,
provides satellite data services for global maritime surveillance.
This news release may contain certain forward-looking statements that
involve risks and uncertainties. Actual results may differ materially
from results indicated in any forward-looking statements. The Company
cautions that, among other things, in view of the rapid changes in
communications markets and technologies, and other risks including the
cost and market acceptance of the Company's new products, the level of
individual customer procurements and competitive product offerings and
pricing, and general economic circumstances, the Company's business
prospects may be materially different from forward-looking statements
made by the Company.
The triangular logo and the word COM DEV are each registered trademarks
and the property of COM DEV Ltd. All rights reserved.
SOURCE Com Dev International Ltd.
For further information:
Chief Financial Officer
Tel: (519) 622-2300 ext. 2826
Tel: (416) 815-0700 ext. 290