Avcorp announces 2016 First Quarter Financial Results

VANCOUVER, May 16, 2016 /CNW/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its first quarter financial results for the quarter ended March 31, 2016.

During the quarter ended March 31, 2016 Avcorp Group revenues totaled $35,347,000 as compared to $15,661,000 revenue for the same quarter in the previous year.  The December 18, 2015 acquisition of the US based composite Aerostructures division of Hitco located in Gardena, CA has added $18,933,000 to current quarter revenues.

Composite aircraft structure repair revenues out of Comtek, Avcorp's Burlington, ON facility, continued with a strong performance, as 2016 revenues increased 94% over revenues in the previous year's first quarter.  Composite floor panel revenues arising from aftermarket or spare component sales remained flat in first quarter 2016 relative to first quarter 2015; while composite floor panel revenues derived from sales to original equipment manufacturers have significantly increased by 107%. 

Avcorp's Delta facility revenues generated by legacy production contracts have decreased by 11% during the current quarter relative the same quarter in the previous year; primarily as a result of a scheduled customer decrease in deliveries for one defence program contract. 

During the quarter ended March 31, 2016, the Avcorp Group recorded a loss from operations of $12,399,000 on $35,347,000 revenue, as compared to a $2,672,000 operating loss on $15,661,000 revenue for the same quarter in the previous year. 

The start-up, post-acquisition of the new operations in Gardena faced several unanticipated challenges during the first quarter 2016. As a result of legacy quality issues raised by customers, a number of items were identified that required corrective action. These items accounted for substantial expenditures beyond normal production costs. The implementation of the necessary corrective actions limited production output during the current quarter and was the major contributor to lower than forecasted sales.  The majority of the corrective actions will be implemented in the second quarter of 2016 thereby allowing the Gardena operations to achieve fully contracted output levels. Avcorp's key commercial customers have worked collaboratively with Avcorp to mitigate production schedules and support the earliest resolution of the outstanding process and product issues.

The Gardena facility defence programs have not experienced the extraordinary unanticipated issues relative to process quality and operational disruptions as the commercial programs have. The planned improvement plans for the defence programs, including the F-35 program for Lockheed Martin, are performing as forecasted.

As at March 31, 2016, the Company had $10,493,000 cash on hand and had not utilized its operating line of credit. The Company has a working capital surplus of $47,036,000 as at March 31, 2016.

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, Fuji Heavy Industries and Lockheed Martin.  The Avcorp Group has more than 50 years of experience, over 750 skilled employees and 636,000 square feet of facilities. Avcorp Structures & Integration located in Delta BC is dedicated to metallic and composite aerostructures assembly and integration; Avcorp Engineered Composites located in Burlington ON is dedicated to design and manufacture of small-sized composite aerostructures, and Avcorp Composite Fabrication located in Gardena CA has advanced composite aerostructures fabrication capabilities for medium and large 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 location also offers 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 and are wholly owned subsidiaries of Avcorp Industries Inc.

Comtek Advanced Structures Ltd., incorporated in the Province of Ontario is a wholly owned subsidiary of Avcorp Industries Inc.

Avcorp Industries Inc. is a federally incorporated reporting 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) 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 INTERM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars)

	March 31, 2016	December 31, 2015
ASSETS
Current assets
Cash	$  10,493	$  14,484
Accounts receivable	31,613	30,124
Consideration receivable	17,843	26,624
Inventories	37,939	36,383
Prepayments and other assets	1,475	1,424
	99,363	109,039
Non-current assets
Prepaid rent and security	430	449
Consideration receivable	-	12,096
Development costs	4,078	3,187
Property, plant and equipment	29,123	29,880
Intangibles	14,081	16,095
Total assets	147,075	170,746
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities	24,761	27,087
Current portion of long-term debt	174	240
Customer advance	9,926	10,408
Deferred program revenues	6,940	4,924
Unfavourable contracts liability	10,526	11,335
	52,327	53,994
Non-current liabilities
Deferred gain	109	121
Lease inducement	247	271
Long-term debt	1,649	1,646
Customer advance	9,286	12,697
Unfavourable contracts liability	71,749	78,636
Deferred program revenues	195	-
Deferred income taxes payable	1,158	1,235
	136,720	148,600
Equity
Capital stock	80,158	80,158
Contributed surplus	4,266	4,453
Accumulated other comprehensive income	487	-
Deficit	(74,556)	(62,465)
	10,355	22,146
Total liabilities and equity	147,075	170,746

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)

FOR THE QUARTER ENDED MARCH 31	2016	2015
Revenues	$  35,347	$  15,661
Cost of sales	38,383	15,128
Gross profit	(3,036)	533
Administrative and general expenses	9,138	3,077
Office equipment depreciation	225	128
Operating (Loss)	(12,399)	(2,672)
Finance costs – net	12	23
Foreign exchange (gain) loss	(270)	66
(Gain) on sale of equipment	(50)	-
(Loss) Income before income tax	(12,091)	(2,761)
Income tax expense	-	-
Net (loss) income for the period	(12,091)	(2,761)
Other comprehensive income	(487)	-
(Loss) and total comprehensive (loss) income for the period	(11,604)	(2,761)
(Loss) Earnings per share:
Basic (loss) earnings per common share	(0.04)	(0.01)
Diluted (loss) earnings per common share	(0.04)	(0.01)
Basic weighted average number of shares outstanding (000's)	305,555	302,633
Diluted weighted average number of shares outstanding (000's)	305,555	302,633

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, prepared in accordance with IAS 34, expressed in thousands of Canadian dollars)

FOR THE QUARTER ENDED MARCH 31			2016	2015
Cash flows from (used in) operating activities
Net (loss) income for the period			$  (12,091)	$  (2,761)
	Adjustment for items not affecting cash:
		Accrued interest and government royalties	20	18
		Depreciation	860	387
		Development cost amortization	153	2
		Intangible assets amortization	1,081	-
		Gain on disposal of equipment	(50)	-
		Provision for loss-making contracts	(2,272)	95
		Provision for obsolete inventory	31	98
		Provision for doubtful accounts	204	-
		Stock based compensation	(187)	246
		Other items	(32)	(32)
			(12,283)	(1,947)
Changes in non-cash working capital
		Accounts receivable	(1,803)	(1,438)
		Consideration receivable	19,551	-
		Inventories	(2,954)	(1,514)
		Prepayments and other assets	(53)	343
		Accounts payable and accrued liabilities	(1,118)	1,317
		Customer advance	(2,611)	-
		Deferred program revenues	542	(1,352)
Net cash from (used in) operating activities			(729)	(4,591)
Cash flows from (used in) investing activities
Proceeds from sale of equipment			50	-
Purchase of equipment			(1,482)	(641)
Payments relating to development costs and tooling			(1,044)	(692)
Net cash from (used in) investing activities			(2,476)	(1,333)
Cash flows from (used in) financing activities
Increase (decrease) in bank indebtedness			-	3,118
Payment of interest			(8)	(9)
Proceeds from current and long term debt			31	662
Repayment of current and long-term debt			(105)	(75)
Net cash from (used in) financing activities			(82)	3,696
Net increase (decrease) in cash			(3,287)	(2,228)
Net foreign exchange difference			(704)	(50)
Cash - Beginning of period			14,484	3,159
Cash - End of period			10,493	881

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	Accumulated Other Comprehensive Income	Total equity
Balance December 31, 2014	302,633,184	79,921	3,129	(65,673)	-	17,377
Stock based compensation expense	-	-	246	-	-	246
Loss for the quarter	-	-	-	(2,761)	-	(2,761)
Balance March 31, 2015	302,633,184	79,921	3,375	(68,434)	-	14,862
Balance December 31, 2015	305,555,184	80,158	4,453	(62,465)	-	22,146
Stock-based compensation expense	-	-	233	-	-	233
Cancellation of issued stock options	-	-	(420)	-	-	(420)
Unrealized currency gain on translation for the quarter	-	-	-	-	487	487
Loss for the quarter	-	-	-	(12,091)	-	(12,091)
Balance March 31, 2016	305,555,184	80,158	4,266	(74,556)	487	10,355

SOURCE Avcorp Industries Inc.

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