Avcorp announces 2015 Second Quarter Financial Results

VANCOUVER, Aug. 13, 2015 /CNW/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its second quarter financial results for the quarter ended June 30, 2015.

During the quarter ended June 30, 2015 Avcorp Group revenues totaled $20,369,000 as compared to $21,134,000 revenue for the same quarter in the previous year.  2015 year-to date revenues for the Avcorp Group have increased for production and deliveries of commercial aerospace products, while government budgetary curtailed defense spending has caused deliveries of defense aerospace products to be lesser in 2015 than for the same two quarter period in 2014.  Year-to-date 2015 revenues amount to $36,030,000 as compared to $38,685,000 for the same period in 2014.

Increased production by Comtek of composite floor panels for delivery to Bombardier Aerospace's regional and business jets floors product lines, strong sales into the composite floor panel aftermarket, as well as continued higher than historical composite and metal aircraft structure repairs on a "loyalty" program with key accounts, has significantly contributed to increasing Comtek's second quarter revenues by 13% over the same quarter in 2014.

On July 20, 2015, the Company entered into a definitive agreement (the "Agreement") to acquire the US-based composite aerostructures division of Hitco Carbon Composites Inc. ("Hitco") a subsidiary of Frankfurt-listed SGL Carbon SE ("SGL").

The aerostructures division of Hitco is a large carbon composites aerostructures manufacturer which produces and supplies composite aerostructures assemblies to aerospace markets.  Its products comprise complex mold line structures such as beams, wing skins, tailcones, pressurized bulkheads and control surfaces.  Hitco's products are sold within the commercial and military aerospace industry.

The acquisition of Hitco's aerostructures composite division offers a unique opportunity to transform the Avcorp Group's existing metal fabrication and integrated assembly business by broadening the product range and strengthening its composite capabilities. Advanced composite fabrication capabilities, provided by this acquisition, will enhance Avcorp Group's ability to participate in large aerospace assembly programs which combine mixed material components.

Closing is subject to customary conditions, including finalization of other ancillary agreements, third party and regulatory approvals, and is anticipated to occur in Q3 2015.

During the quarter ended June 30, 2015, the Avcorp Group recorded a loss from operations of $1,125,000 on $20,369,000 revenue, as compared to a $472,000 operating loss on $21,134,000 revenue for the same quarter in the previous year; and a net loss for the current quarter of $1,135,000 as compared to net loss of $589,000 for the quarter ended June 30, 2014. 

During the current quarter Avcorp incurred expenses totaling $491,000 in support of its current merger and acquisition initiatives.  Specifically, the Company incurred costs in execution of the due diligence process related to constructing the legal framework, examining operations and conducting financial, as well as valuation assessments.  Although one time in nature, these costs are expected to continue through to close of the acquisition transaction.

There remain within operations significant levels of unutilized plant capacity within the Company's British Columbia facility.  The Company has expensed $1,204,000 of overhead costs during the current quarter (June 30, 2014: $1,268,000) in respect of unutilized plant capacity.  The amount of overhead costs expensed, as a result of unutilized capacity, will fluctuate from quarter to quarter as production in support of deliveries varies. 

Cash flows from operating activities during the quarter ended June 30, 2015 utilized $2,580,000 of cash as compared to generating $103,000 of cash during the quarter ended June 30, 2014.  The primary use of cash from operations during the current quarter is due to recognition of revenue related to current quarter product deliveries for which the cash was received in a previous quarter.  The Company has a working capital surplus of $3,189,000 as at June 30, 2015 which has decreased from the December 31, 2014 $7,205,000 surplus, as a result of cash utilized in operating activities.  The Company's accumulated deficit as at June 30, 2015 is $69,569,000 (December 31, 2014: $65,673,000).

About Avcorp

Avcorp designs and builds major airframe structures for some of the world's leading aircraft companies, including BAE Systems, Boeing and Bombardier.  With more than 50 years of experience, over 388 skilled employees and 340,000 square feet of facilities in Delta BC and Burlington ON, Avcorp 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.  Our Burlington location also offers composite repairs for commercial aircraft.  Avcorp is a Canadian public company 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) the extent to which the Company is able to achieve savings from its restructuring plans; (b) uncertainty in estimating the amount and timing of restructuring charges and related costs; (c) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (d) the occurrence of work stoppages and strikes at key facilities of the Company or the Company's customers or suppliers; (e) government funding and program approvals affecting products being developed or sold under government programs; (f) cost and delivery performance under various program and development contracts; (g) the adequacy of cost estimates for various customer care programs including servicing warranties; (h) the ability to control costs and successful implementation of various cost reduction programs; (i) the timing of certifications of new aircraft products; (j) the occurrence of further downturns in customer markets to which the Company products are sold or supplied or where the Company offers financing; (k) changes in aircraft delivery schedules or cancellation of orders; (l) the Company's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (m) the availability and cost of insurance; (n) the Company's ability to maintain portfolio credit quality; (o) the Company's access to debt financing at competitive rates; and (p) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars)
	June 30, 2015	December 31, 2014
ASSETS
Current assets
Cash	$  830	$  3,159
Accounts receivable	11,032	5,642
Inventories	15,210	13,738
Prepayments and other assets	1,124	1,290
	28,196	23,829
Non-current assets
Prepaid rent	146	146
Development costs	4,350	3,303
Property, plant and equipment	8,294	8,204
Total assets	40,986	35,482
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness	6,249	-
Accounts payable and accrued liabilities	10,468	8,549
Current portion of long-term debt	366	293
Deferred program revenues	7,924	7,782
	25,007	16,624
Non-current liabilities
Deferred gain	144	168
Lease inducement	320	370
Long-term debt	1,542	943
	27,013	18,105
Equity
Capital stock	79,921	79,921
Contributed surplus	3,621	3,129
Deficit	(69,569)	(65,673)
	13,973	17,377
Total liabilities and equity	40,986	35,482

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars, except number of shares and per share amounts)
	Three months ended		Six months ended
FOR THE PERIOD ENDED JUNE 30	2015	2014	2015	2014
Revenues	$  20,369	$  21,134	$  36,030	$  38,685
Cost of sales	18,191	18,700	33,319	34,624
Gross profit	2,178	2,434	2,711	4,061
Administrative and general expenses	3,182	2,762	6,259	5,641
Office equipment depreciation	121	144	249	289
Operating (Loss) Income	(1,125)	(472)	(3,797)	(1,869)
Finance (income) costs – net	71	22	94	20
Foreign exchange (gain) loss	(61)	92	5	(65)
Write-down of equipment	-	3	-	7
(Loss) Income before income tax	(1,135)	(589)	(3,896)	(1,831)
Income tax expense	-	-	-	-
(Loss) Income and total comprehensive (loss) income for the period	(1,135)	(589)	(3,896)	(1,831)
(Loss) Earnings per share:
Basic (loss) earnings per common share	(0.00)	(0.00)	(0.01)	(0.01)
Diluted (loss) earnings per common share	(0.00)	(0.00)	(0.01)	(0.01)
Basic weighted average number of shares outstanding (000's)	302,633	283,010	302,633	282,553
Diluted weighted average number of shares outstanding (000's)	302,633	283,010	302,633	282,553

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars)
	Three months ended		Six months ended
FOR THE PERIOD ENDED JUNE 30	2015	2014	2015	2014
Cash flows from (used in) operating activities
(Loss) Income before income tax	$  (1,135)	$  (589)	$  (3,896)	$  (1,831)
Adjustment for items not affecting cash:
Accrued interest and government royalties	18	13	36	16
Depreciation	395	411	782	775
Development cost amortization	46	1	48	136
Provision for loss-making contracts	(118)	-	(23)	(31)
Provision for obsolete inventory	55	90	153	49
Stock based compensation	246	12	492	7
Write-down of equipment	-	3	-	7
Other items	(30)	(62)	(62)	(84)
	(523)	(121)	(2,470)	(956)
Changes in non-cash working capital
Accounts receivable	(102)	(317)	(1,540)	1,055
Inventories	(89)	2,586	(1,603)	2,438
Prepayments and other assets	(179)	157	164	201
Accounts payable and accrued liabilities	432	1,500	1,749	2,132
Deferred program revenues	(2,119)	(3,702)	(3,471)	(6,921)
Net cash from (used in) operating activities	(2,580)	103	(7,171)	(2,051)
Cash flows from (used in) investing activities
Proceeds from sale of equipment	-	559	-	568
Purchase of equipment	(147)	(400)	(788)	(790)
Payments relating to development costs and tooling	(403)	(1,093)	(1,095)	(1,405)
Net cash from (used in) investing activities	(550)	(934)	(1,883)	(1,627)
Cash flows from (used in) financing activities
Increase (decrease) in bank indebtedness	3,131	-	6,249	-
Payment of interest	(8)	(14)	(17)	(17)
Proceeds from current and long term debt	91	-	753	-
Proceeds from issuance of common shares	-	44	-	142
Redemption of preferred shares and accrued dividends	-	-	-	(36)
Repayment of current and long-term debt	(109)	(307)	(184)	(323)
Net cash from (used in) financing activities	3,105	(277)	6,801	(234)
Net increase (decrease) in cash	(25)	(1,108)	(2,253)	(3,912)
Net foreign exchange difference	(26)	77	(76)	(73)
Cash - Beginning of period	881	4,058	3,159	7,012
Cash - End of period	830	3,027	830	3,027

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars, except number of shares)
	Share capital
	Shares	Amount	Contributed surplus	Deficit	Total equity
Balance December 31, 2013	280,391,152	77,681	3,593	(57,723)	23,551
Issue of common shares	2,691,500	142	-	-	142
Stock based compensation expense	-	-	(7)	-	(7)
Transfer to share capital on exercise of stock options	-	87	(87)	-	-
Loss for the period	-	-	-	(1,831)	(1,831)
Balance June 30, 2014	283,082,652	77,910	3,499	(59,554)	21,855
Balance December 31, 2014	302,633,184	79,921	3,129	(65,673)	17,377
Stock-based compensation expense	-	-	492	-	492
Loss for the period	-	-	-	(3,896)	(3,896)
Balance June 30, 2015	302,633,184	79,921	3,621	(69,569)	13,973

SOURCE Avcorp Industries Inc.

Sandi DiPrimo, Investor Relations Contact 604-587-4938 or email [email protected]