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Avcorp announces 2019 First Quarter Financial Results

CNW Group - Tue May 14, 7:04PM CDT

Avcorp Industries Inc. (TSX:AVP.TO) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended March 31, 2019. All amounts are in Canadian currency unless otherwise stated.

2019 Highlights

Key fiscal year 2019 financial results include:

--  First quarter 2019 operating loss was reduced by $2,983,000, in
        comparison to the same quarter in 2018, primarily as a result
        of consolidation of costs and improved operating effectiveness;
        after the benefit of amortization to income of unfavourable
        contracts liability, onerous contracts provisions, and the
        income impact of the net claim settlement have been removed.

    --  On January 25, 2019, the Company entered into a net claim
        settlement agreement with HITCO Carbon Composites, Inc., SGL
        Carbon, LLC, and SGL Carbon SE (the "SGL parties") and a
        customer, which provided the Company a settlement in
        satisfaction of existing and potential claims, causes of
        action, disputes and other business matters related to the
        acquisition from the SGL parties. The net claim settlement
        resulted in a gain of $19,744,000.

    --  First quarter 2019 cash flows from operating activities were
        increased by $27,497,000, relative to the same quarter in 2018.

    --  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.

Review of 2019 First Quarter Financial Results

For the quarter ended March 31, 2019, the Avcorp Group recorded income from operations totaling $15,057,000 from $42,225,000 revenue, as compared to $4,606,000 operating losses from $43,276,000 revenue for the previous quarter. It should be noted that 2019 operating income benefited by $517,000 income from amortization of onerous contracts provision into income (March 31, 2018: $3,581,000 amortization of unfavourable contract liability and onerous contract liability). On January 25, 2019, the Company and its subsidiary Avcorp Composite Fabrication Inc. (the "Avcorp Parties") entered into an agreement with HITCO Carbon Composites, Inc., SGL Carbon, LLC, and SGL Carbon SE (the "SGL parties") and a customer to settle all claims related to alleged deficiencies in HITCO's non-destructive inspection processes and other business matters including a lease renewal and collection of previously provisioned accounts receivable in exchange for gross consideration of USD$12,000,000 from the SGL parties to Avcorp and mutual releases among the Avcorp Parties, SGL Parties and a customer related to the acquisition. The net claim settlement resulted in a gain of $19,744,000. Continued consolidation of operating costs have resulted in reduced current quarter operating losses, in comparison to the same quarter in 2018 after the benefit of amortization to income of unfavourable contracts liability and onerous contracts provisions, and the income impact of the net claim settlement have been removed.

During the quarter ended March 31, 2019, cash flows from operating activities, excluding the impact of changes in non-cash working capital, provided $12,998,000 of cash as compared with utilization of $4,572,000 of cash during the quarter ended March 31, 2018; a significant improvement, primarily attributable to a reduction in operating losses during 2019 in comparison to 2018 and net claim settlement collected of USD$10,810,000.

As at March 31, 2019, the Company had $2,405,000 cash on hand (December 31, 2018: $2,051,000) and had utilized $72,005,000 of its operating line of credit (December 31, 2018: $85,840,000). The Company has a working capital deficit of $61,345,000 as at March 31, 2019 which has decreased from the December 31, 2018 $71,503,000 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 $19,148,000 surplus as at March 31, 2019 (December 31, 2018: $22,000,000 surplus). The Company's accumulated deficit as at March 31, 2019 is $119,269,000 (December 31, 2018: $132,878,000).

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 700 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.TO).


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 (

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.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(unaudited, expressed in thousands of Canadian dollars)

2019       2018


              Current assets

     Cash                                             $2,405     $2,051

     Accounts receivable                              23,116     23,442

     Contract assets                                  24,143     24,762

     Inventories                                      14,161     15,601

     Prepayments and other assets                      5,777      6,076

                                                       69,602     71,932

                 Non-current assets

     Prepaid rent and security                                     146

     Development costs                                12,152     11,755

      Property, plant and equipment                    49,006     28,416

     Intangibles                                       6,516      3,137

     Investment in AVS-SYS                               668        682

              Total assets                         137,944    116,068


                 Current liabilities

     Bank indebtedness                                72,005     85,840

      Accounts payable and accrued
       liabilities                                     42,272     41,805

     Current portion of term debt                      7,953      5,510

     Customer advance                                  6,204      6,334

     Contract liability                                1,178      2,137

     Onerous contract provision                        1,335      1,809

                                                      130,947    143,435

                 Non-current liabilities

     Guarantee fee                                     3,458      2,994

     Term debt                                        22,229      2,800

     Contract liability                                2,998      2,862

     Onerous contract provision                           71        121

                                                      159,703    152,212

                 (Deficiency) Equity

     Capital stock                                    86,219     86,219

     Contributed surplus                               5,391      5,370

      Accumulated other comprehensive
       income                                           5,900      5,145

     Accumulated deficit                           (119,269) (132,878)

                                                     (21,759)  (36,144)

                 Total liabilities and (deficiency)
                  equity                              137,944    116,068

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)(unaudited, expressed in thousands of Canadian dollars, except number of shares and per share amounts)

FOR THE QUARTER ENDED MARCH 31           2019    2018

                Revenues                              $42,225 $43,276

                Cost of sales                          41,572  42,503

                   Gross profit (loss)                       653     773

      Administrative and general expenses                  5,151   5,235

     Office equipment depreciation                          189     144

     Net gain on settlement                            (19,744)

                   Operating income (loss)                15,057 (4,606)

     Finance costs - net                                  1,878   1,036

     Foreign exchange gain                                (430)   (41)

                   Income (loss) before income tax        13,609 (5,601)

     Income tax expense

                   Income (loss) for the period           13,609 (5,601)

      Other comprehensive (loss) income                      755 (2,379)

                   Net income (loss) and total
                    comprehensive income (loss) for the
                    period                                14,364 (7,980)

                   Income (loss) per share:

      Basic income (loss) per common share                  0.04  (0.02)

      Diluted income (loss) per common share                0.04  (0.02)

      Basic weighted average number of shares
       outstanding (000's)                               368,119 337,405

      Diluted weighted average number of
       shares outstanding (000's)                        369,001 337,405

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, expressed in thousands of Canadian dollars)

FOR THE QUARTER ENDED MARCH 31          2019     2018

                   Cash flows from (used in) operating

      Net income (loss) for the period                  $13,609 $(5,601)

         Adjustment for items not affecting

     Interest expense                                    1,875    1,036

     Depreciation                                        1,904    1,093

      Development cost amortization                         305    1,230

      Intangible assets amortization                        297      330

      Non-cash financing cost accretion                       3        2

      Provision for unfavourable contracts                      (1,965)

      Provision for onerous contracts                     (517) (1,616)

      Provision for doubtful accounts                     (536)

      Provision for obsolete inventory                    (240)   1,199

     Stock based compensation                               21       96

     Net claim settlement                              (3,309)

     Unrealized foreign exchange                         (414)   (341)

     Other items                                                  (35)

      Cash flows from (used in) operating
       activities before changes in non-cash
       working capital                                   12,998  (4,572)

      Changes in non-cash working capital

     Accounts receivable                                 3,269  (6,730)

     Contract assets                                       491  (1,820)

     Inventories                                         1,481      430

     Prepayments and other assets                        (190)   (358)

      Accounts payable and accrued
       liabilities                                        (895)   2,404

     Customer advance payable                                    (877)

     Contract liability                                (1,882)   (702)

                   Net cash from (used in) operating
                    activities                           15,272 (12,225)

                   Cash flows (used in) investing

     Purchase of equipment                               (182)   (704)

      Addition of developed software                              (220)

      Payments relating to development costs
       and tooling                                        (707) (1,051)

                   Net cash (used in) from investing
                    activities                            (889) (1,975)

                   Cash flows (used in) from financing

      (Decrease) Increase in bank
       indebtedness                                    (12,048)  11,400

     Payment of interest                               (1,248)   (993)

     Proceeds from term debt                                       412

     Repayment of term debt                              (603)    (98)

                   Net cash (used in) from financing
                    activities                         (13,899)  10,721

                   Net increase (decrease) in cash          484  (3,479)

                   Net foreign exchange difference        (130)     580

                   Cash -Beginning of the period          2,051    5,212

                   Cash -End of the period                2,405    2,313

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   Accumulated Deficit

                Accumulated      Total Deficiency
                                                                                                               Comprehensive Income

     Balance at January
      1, 2018                               337,404,502  82,905                 6,979              (153,251)                               9,896             (53,471)

      expense                                                                    96                                                                             96

     Unrealized currency
      gain on translation
      for the period                                                                                                                  (2,379)             (2,379)

     Net loss for the
      period                                                                                      (5,601)                                                 (5,601)

                  Balance at March 31,
                   2018                     337,404,502  82,905                 7,075              (158,852)                               7,517             (61,355)

     Balance at December
      31, 2018                              368,118,620  86,219                 5,370              (132,878)                               5,145             (36,144)

      expense                                                                    21                                                                             21

     Unrealized currency
      loss on translation
      for the period                                                                                                                      755                  755

     Net income for the
      period                                                                                       13,609                                                   13,609

                  Balance at March 31,
                   2019                     368,118,620  86,219                 5,391              (119,269)                               5,900             (21,759)

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SOURCE Avcorp Industries Inc.

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SOURCE: Avcorp Industries Inc.

Sandi DiPrimo, Investor Relations Contact | 604-587-4938

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