Chronicle Journal: Finance

Avcorp announces 2018 Annual Financial Results

VANCOUVER, April 1, 2019 /PRNewswire/ - 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.

 

Cision View original content:http://www.prnewswire.com/news-releases/avcorp-announces-2018-annual-financial-results-300821722.html

SOURCE Avcorp Industries Inc.

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