VANCOUVER, April 1, 2019 /CNW/ - Avcorp Industries Inc.
(TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today
announced its financial results for the year ended December 31, 2018. All amounts are in Canadian
currency unless otherwise stated.
2018 Highlights
Key fiscal year 2018 financial results include:
- 2018 operating loss was reduced by $26,364,000, in comparison to 2017, primarily as
a result of increased revenues, consolidation of costs and improved
operating effectiveness; after the benefit of amortization to
income of unfavourable contracts liability and onerous contracts
provisions, and the income impact of a net claim position and
contract modification, have been removed.
- During the third quarter 2018 production requirements
associated with a certain unfavourable contract were redirected to
another supplier, giving rise to the full amortization of the
unfavourable contracts liability and related onerous contract
provision into income. This has been recorded in the Consolidated
Statements of Income (Loss) and Comprehensive Income (Loss) as a
contract modification in the amount of $41,470,000.
- On August 20, 2018, the Company
entered into a settlement agreement with a customer, in the amount
of $2,219,000, which provided the
Company a Net claim settlement in satisfaction of existing and
potential claims, causes of action, and disputes between the
Company and its customer.
- 2018 cash flows used in operating activities were reduced by
$26,575,000, relative to 2017.
- On March 28, 2018, the Company
signed a loan agreement to expand the current agreement with a
Canadian Chartered Bank, supported by a major and material
customer, to access an additional USD$10,000,000 operating line of credit.
- On August 24, 2018, the Company
signed a non-revolving term loan agreement with its majority
shareholder in the principal amount of USD$3,500,000.
- On April 19, 2018 Avcorp's Board
appointed Amandeep Kaler, formerly
the General Manager of Avcorp's Delta operations, as the new CEO of Avcorp
Group.
- Avcorp is a member of Canada's
Digital Technology Supercluster ("CDTS") which was awarded funding
under the Federal Government's Innovation Supercluster Initiative
("ISI").
- In Comtek's continuing effort to reduce airline operator's key
metric of turnaround time for repaired aircraft components, while
still providing premium quality, Comtek has embarked on deploying a
forward base of operations located in the United Kingdom. EASA certification has now
been granted and the team is actively engaged on its' first repair
orders, providing much needed support for the growing Q400 fleet in
Europe.
Highlights Subsequent to Year-End
Since December 31, 2018 key
developments include:
- On January 25, 2019, the Company
announced that it reached a settlement with HITCO Carbon
Composites, Inc., SGL Carbon, LLC, and SGL Carbon SE of all claims
related to alleged deficiencies in HITCO's non-destructive
inspection processes
- On March 28, 2019, the Company
entered into an amendment to its existing credit facility with a
Canadian chartered bank whereby the following amendments were
made:
-
- Maximum availability under the Revolving Loan cannot exceed
USD$68,000,000 less USD$4,300,000, until April
30, 2019, at which time the agreement reverts back to
existing terms.
- Availability under the Revolving Loan was increased on
March 28, 2018, by USD$10,000,000 ("Expanded Loan"), subject to
existing drawdown provisions, interest rates and bonus fees.
Drawdowns under the Expanded Loan are supported by a major and
material customer of the Company by way of a guarantee. The
maturity of the Expanded Loan has been extended from March 31, 2019 to April
30, 2019.
Review of 2018 Financial Results
For the year ended December 31,
2018, the Avcorp Group recorded income from operations
totaling $26,917,000 from
$170,710,000 revenue, as compared to
$53,773,000 operating losses from
$149,444,000 revenue for the previous
year. It should be noted that 2018 operating income benefited by
$13,732,000 income from amortization
of an unfavourable contract liability and onerous contracts
provision into income (December 31,
2017: $4,545,000 reduction in
operating income). During the third quarter 2018 production of a
certain unfavourable contract was modified after the customer
stopped issuing purchase orders to the Company and redirected
production requirements to another supplier, giving rise to the
full amortization of the unfavourable contracts liability and
related onerous contract provision into income. This has been
recorded in Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) as a contract modification in the
amount of $41,470,000. On
August 20, 2018, the Company entered
into a settlement agreement with a customer, in the amount of
$2,219,000, which provided the
Company a net settlement in satisfaction of existing and potential
claims, causes of action, and disputes between the Company and its
customer. Increased sales and continued consolidation of operating
costs have resulted in reduced current year operating losses, in
comparison to 2017 after the benefit of amortization to income of
unfavourable contracts liability and onerous contracts provisions,
and the income impact of a claim settlement and contract
modification, have been removed.
During the year ended December 31,
2018, cash flows from operating activities, excluding the
impact of changes in non‑cash working capital, utilized
$11,632,000 of cash as compared with
utilization of $42,257,000 of cash
during the year ended December 31,
2017; a significant improvement, primarily attributable to a
reduction in operating losses during 2018 in comparison to
2017.
As at December 31, 2018, the
Company had $2,051,000 cash on hand
(December 31, 2017: $5,212,000) and had utilized $85,840,000 of its operating line of credit
(December 31, 2017: $61,283,000). The Company has a working capital
deficit of $71,503,000 as at
December 31, 2018 which has increased
from the December 31, 2017
$63,038,000 deficit. Working capital
surplus/deficit is defined as the difference between current assets
and current liabilities. However, the Company's accounts
receivable, contract assets, and inventories net of accounts
payable, amount to a $22,000,000
surplus as at December 31, 2018
(December 31, 2017: $38,464,000 surplus). The Company's accumulated
deficit as at December 31, 2018 is
$132,878,000 (December 31, 2017: $157,185,000).
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. The Avcorp Group has more than 60 years of experience,
over 650 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)
AMANDEEP KALER
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
|
2018
|
2017
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash
|
$2,051
|
$5,212
|
Accounts
receivable
|
23,442
|
18,942
|
Contract
assets
|
24,762
|
-
|
Inventories
|
15,601
|
42,781
|
Prepayments and other
assets
|
6,076
|
4,390
|
|
71,932
|
71,325
|
Non-current
assets
|
|
|
Prepaid rent and
security
|
146
|
146
|
Development
costs
|
11,755
|
8,623
|
Property, plant and
equipment
|
28,416
|
29,318
|
Intangibles
|
3,137
|
3,864
|
Investment in
AVS-SYS
|
682
|
-
|
Total
assets
|
116,068
|
113,276
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
Current
liabilities
|
|
|
Bank
indebtedness
|
85,840
|
61,283
|
Accounts payable and
accrued liabilities
|
41,805
|
23,259
|
Current portion of
term debt
|
5,510
|
1,285
|
Customer
advance
|
6,334
|
7,227
|
Contract
liability
|
2,137
|
17,131
|
Unfavourable
contracts liability
|
-
|
16,881
|
Onerous contract
provision
|
1,809
|
7,297
|
|
143,435
|
134,363
|
Non-current
liabilities
|
|
|
Guarantee
fee
|
2,994
|
575
|
Deferred gain and
lease inducement
|
-
|
100
|
Term debt
|
2,800
|
1,885
|
Contract
liability
|
2,862
|
110
|
Unfavourable
contracts liability
|
-
|
27,579
|
Onerous contract
provision
|
121
|
6,069
|
|
152,212
|
170,681
|
(Deficiency)
Equity
|
|
|
Capital
stock
|
86,219
|
82,905
|
Contributed
surplus
|
5,370
|
6,979
|
Accumulated other
comprehensive income
|
5,145
|
9,896
|
Accumulated
deficit
|
(132,878)
|
(157,185)
|
|
(36,144)
|
(57,405)
|
Total liabilities
and (deficiency) equity
|
116,068
|
113,276
|
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(expressed in thousands of
Canadian dollars, except number of shares and per share
amounts)
AS AT DECEMBER
31
|
2018
|
2017
|
|
|
|
Revenues
|
$170,710
|
$149,444
|
|
|
|
Cost of
sales
|
155,753
|
181,296
|
|
|
|
Gross profit
(loss)
|
14,957
|
(31,852)
|
|
|
|
Administrative and
general expenses
|
23,466
|
21,580
|
Office equipment
depreciation
|
623
|
341
|
Net contract
modification
|
(41,470)
|
-
|
Net claim
position
|
5,421
|
-
|
|
|
|
Operating income
(loss)
|
26,917
|
(53,773)
|
|
|
|
Finance costs –
net
|
5,774
|
2,806
|
Foreign exchange
loss
|
770
|
1,944
|
Net loss on sale of
equipment
|
-
|
15
|
|
|
|
Income (loss)
before income tax
|
20,373
|
(58,538)
|
|
|
|
Income tax
expense
|
-
|
-
|
|
|
|
Income (loss) for
the period
|
20,373
|
(58,538)
|
|
|
|
Other comprehensive
(loss) income
|
(4,751)
|
5,178
|
|
|
|
Net income (loss)
and total comprehensive income (loss) for the period
|
15,622
|
(53,360)
|
|
|
|
Income (loss) per
share:
|
|
|
Basic income (loss)
per common share
|
0.06
|
(0.18)
|
Diluted income (loss)
per common share
|
0.06
|
(0.18)
|
|
|
|
Basic weighted
average number of shares outstanding (000's)
|
345,651
|
318,019
|
|
|
|
Diluted weighted
average number of shares outstanding (000's)
|
345,993
|
318,019
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars)
AS AT DECEMBER
31
|
2018
|
2017
|
Cash flows (used
in) operating activities
|
|
|
Net income (loss) for
the year
|
$20,373
|
$(58,538)
|
Adjustment for items not affecting cash:
|
|
|
Interest
expense
|
5,765
|
2,216
|
Depreciation
|
4,482
|
4,153
|
Development cost
amortization
|
3,291
|
1,924
|
Intangible assets
amortization
|
1,379
|
1,299
|
Non-cash financing
cost accretion
|
9
|
589
|
Loss on disposal of
equipment
|
-
|
15
|
Provision for
unfavourable contracts
|
(4,617)
|
(9,058)
|
Provision for onerous
contracts
|
(9,115)
|
13,603
|
Provision for doubtful
accounts
|
543
|
921
|
Provision for obsolete
inventory
|
(928)
|
(678)
|
Stock based
compensation
|
(445)
|
720
|
Net contract
modification
|
(41,470)
|
-
|
Provision for
claim
|
7,640
|
-
|
Unrealized foreign
exchange
|
1,558
|
712
|
Other items
|
(97)
|
(135)
|
|
|
|
Cash flows (used in)
operating activities before changes in non-cash working
capital
|
(11,632)
|
(42,257)
|
Changes in non-cash
working capital
|
|
|
Accounts
receivable
|
(2,922)
|
6,546
|
Contract
assets
|
(6,108)
|
-
|
Inventories
|
2,509
|
869
|
Prepayments and other
assets
|
(805)
|
(693)
|
Accounts payable and
accrued liabilities
|
9,820
|
(6,636)
|
Customer advance
payable
|
(2,660)
|
(3,702)
|
Contract
liability
|
(4,231)
|
3,269
|
|
|
|
Net cash (used in)
operating activities
|
(16,029)
|
(42,604)
|
|
|
|
Cash flows (used
in) from investing activities
|
|
|
Proceeds from
consideration receivable
|
-
|
12,378
|
Proceeds from sale of
equipment
|
-
|
20
|
Purchase of
equipment
|
(1,429)
|
(2,744)
|
Addition of developed
software
|
(371)
|
(571)
|
Payments relating to
development costs and tooling
|
(6,410)
|
(5,347)
|
Investment in
AVS-SYS
|
(551)
|
-
|
|
|
|
Net cash (used in)
from investing activities
|
(8,761)
|
3,736
|
|
|
|
Cash flows from
(used in) financing activities
|
|
|
Increase in bank
indebtedness
|
17,961
|
46,872
|
Payment of
interest
|
(2,862)
|
(1,331)
|
Proceeds from term
debt
|
6,601
|
1,473
|
Repayment of term
debt
|
(294)
|
(6,275)
|
|
|
|
Net cash from
financing activities
|
21,406
|
40,739
|
Net (decrease)
increase in cash
|
(3,384)
|
1,871
|
Net foreign
exchange difference
|
223
|
(619)
|
Cash - Beginning
of the period
|
5,212
|
3,960
|
|
|
|
Cash - End of the
period
|
2,051
|
5,212
|
CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
(expressed in thousands of Canadian dollars,
except number of shares)
|
Capital
Stock
|
|
|
|
|
|
Number
of Shares
|
Amount
|
Contributed
Surplus
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Income
|
Total
Deficiency
|
|
|
|
|
|
|
|
Balance at December
31, 2016
|
307,141,184
|
80,302
|
6,744
|
(98,647)
|
4,718
|
(6,883)
|
|
|
|
|
|
|
|
Issue of common
shares
|
30,263,318
|
2,118
|
-
|
-
|
-
|
2,118
|
|
|
|
|
|
|
|
Transfer to share
capital on exercise of warrants
|
-
|
485
|
(485)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
-
|
-
|
718
|
-
|
-
|
718
|
|
|
|
|
|
|
|
Cancellation of
issued stock options
|
-
|
-
|
2
|
-
|
-
|
2
|
|
|
|
|
|
|
|
Unrealized currency
gain on translation for the period
|
-
|
-
|
-
|
-
|
5,178
|
5,178
|
|
|
|
|
|
|
|
Net loss for the
year
|
-
|
-
|
-
|
(58,538)
|
-
|
(58,538)
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
337,404,502
|
82,905
|
6.979
|
(157,185)
|
9,896
|
(57,405)
|
|
|
|
|
|
|
|
Restated balance at
January 1, 20181
|
337,404,502
|
82,905
|
6,979
|
(153,251)
|
9,896
|
(53,471)
|
|
|
|
|
|
|
|
Issue of common
shares
|
30,714,118
|
2,150
|
-
|
-
|
-
|
2,150
|
|
|
|
|
|
|
|
Transfer to share
capital on exercise of warrants
|
-
|
1,164
|
(1,164)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
-
|
-
|
195
|
-
|
-
|
195
|
|
|
|
|
|
|
|
Forfeiture of issued
stock options
|
-
|
-
|
(640)
|
-
|
-
|
(640)
|
|
|
|
|
|
|
|
Unrealized currency
loss on translation for the year
|
-
|
-
|
-
|
-
|
(4,751)
|
(4,751)
|
|
|
|
|
|
|
|
Net income for the
year
|
-
|
-
|
-
|
20,373
|
-
|
20,373
|
|
|
|
|
|
|
|
Balance at
December 31, 2018
|
368,118,620
|
86,219
|
5,370
|
(132,878)
|
5,145
|
(36,144)
|
1.
|
The Company has
initially applied IFRS 15 using the retrospective with cumulative
effect method. Under this method, the comparative information is
not restated.
|
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SOURCE Avcorp Industries Inc.