Avcorp announces 2021 Annual Financial Results

VANCOUVER, BC, March 25, 2022 /CNW/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the year ended December 31, 2021. All amounts are in Canadian currency unless otherwise stated.

2021 Highlights

• 2021 revenue was $99,476,000 compared to $150,962,000 in 2020. 2021 revenue decreased by $51,486,000, in comparison to 2020. The decrease in revenue in 2021 was due to COVID-19 impact on customer requirements and the recognition of variable consideration on the contract termination of convenience in 2020. In addition, the Gardena facility's revenue decreased as it has fulfilled the remaining customer requirements on a contract and Boeing suspended deliveries of its 787 aircraft during 2021 which impacted Subaru's delivery requirement from the Gardena facility.
• 2021 net loss was $531,000 compared to net loss of $6,725,000 in 2020. The net loss improved by $6,194,000 in comparison to 2020, mainly supported by the Accommodation Agreement settlement of $21,391,000 and the decrease in net financing charge of $4,514,000; offset by the impairment of assets in the Gardena facility, higher administrative and general expenses, a decrease in government grants, and the recognition of variable consideration on the termination of convenience in 2020.
• On March 12, 2021, the Company entered into a multiparty amended and restated Accommodation Agreement with a customer and Panta Canada B.V.
• Panta Canada B.V. has agreed to provide a USD $10,000,000 non-revolving standby loan facility and a USD $3,000,000 equipment loan for an aggregate availability of USD $13,000,000.
• The elimination of an unamortized cash advance, mutual release and forgiveness of certain historic and future guarantee fees payable to the customer, and a legal claim.
• On February 25, 2021, the Company amended the Avcorp Composite Fabrication Inc.'s Gardena facility lease agreement effective January 1, 2021 to vacate certain buildings, reduce shared operating expenses, and reduced the lease term.
• On March 15, 2021, the Company received a $2,508,000 (USD $2,000,000) second wave Small Business Administration Paycheck Protection Program Loan and has recognized the amount as other income in the year ended December 31, 2021 as the company determined it has satisfied the requirements of loan forgiveness.
• On June 8, 2021, the Company received approval for forgiveness on the first wave Small Business Administration Paycheck Protection Program Loan full loan amount of USD $4,123,000. An amount of $4,601,000 (USD $3,430,000) was recognized as other income in the year ended December 31, 2020, the Company recognized the remaining portion of loan forgiveness and related interest of $924,000 (USD $737,000) as other income in the year ended December 31, 2021.
• On June 22, 2021, the Company amended its loan agreement with a Canadian Chartered Bank to extend the maturity date of the existing loan agreement to June 30, 2023, which is supported by a major and material customer of the Company by way of a guarantee and recorded a modification gain of $1,155,000 (USD $932,000).
• On June 28, 2021, the Company received an award letter from BLR Aerospace to produce Wingtips with estimated first delivery by the second quarter of 2022.
• In August 2021, the Company signed a contract extension with Boeing to provide the Wheel Well Fairing assemblies for the Boeing 737 MAX aircraft.

2022 Outlook

• The Company is positioned to perform well in 2022 and into the longer term. Longer term performance, based on current expectations of contracts and contract renewals, show a growth plan with positive operational performance and significant improvement in net cash from operating activities that will enable the Company to repay any outstanding bank indebtedness by fiscal year 2026. The Company continues to work toward securing new defence and commercial program production contracts to augment and diversify its backlog and renewing existing customer production contracts. Current contracts extend as far as 2027 and beyond. As the demand for the commercial air traffic improves and original equipment manufacturer ("OEM") production rates increase for both commercial and defense programs, the Company is expecting a 20% annual growth in revenue in the coming couple of years.  We have strong order backlog as at December 31, 2021 of $457 million.
• The Company forecasts its working capital requirements during the growth path will be met by the current operating line of credit, working capital surplus, and availability on a shareholder loan.

Review of 2021 Financial Results

For the year ended December 31, 2021, the Avcorp Group recorded income from operations of $2,686,000 (December 31, 2020: $2,371,000). Operating income in 2021 increased slightly over 2020 mainly due to the inclusion of the Accommodation Agreement settlement of $21,391,000, offset by lower gross profit of $8,303,000 and impairment loss of $7,815,000 driven from the Gardena facility, lower other income of $3,462,000 and higher administrative and general expenses of $1,560,000.

During the year ended December 31, 2021, the Company had a net loss of $531,000 (December 31, 2020: net loss of $6,725,000), had positive operating cash flows of $4,903,000 (December 31, 2020: positive $9,125,000) shareholders' deficiency of $48,107,000 as of December 31, 2021 (December 31, 2020: $49,140,000 deficiency) and an accumulated deficit of $149,450,000 (December 31, 2020: $148,919,000).

The Company ended the year with bank operating line utilization of $75,335,000 (USD $59,421,000) offset by $4,060,000 cash compared to utilization of $76,439,000 (USD $60,037,000) with $7,044,000 cash on hand as at December 31, 2020. The bank indebtedness balance of the modification gain and related adjustments as a result of executing the amending agreement in 2021 was $923,000 as at December 31, 2021, (December 31, 2020: loss $269,000 from 2019 amendment). Based on net collateral provided to its bank, the Company is able to draw up to an additional $7,879,000 (USD $6,215,000) on its operating line of credit as at December 31, 2021 (December 31, 2020: $1,762,000 (USD$1,384,000)). As at the date of this report the Company is able to draw up to an additional $3,092,000 (USD$2,439,000) on its operating line of credit.

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 65 years of experience, over 450 skilled employees and 560,000 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).

AMANDEEP KALER
CHIEF EXECUTIVE OFFICER
AVCORP GROUP

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(expressed in thousands of Canadian dollars)

AS AT DECEMBER 31	2021	2020
ASSETS
Current assets
Cash	$4,060	$7,044
Accounts receivable	18,116	14,436
Government grant receivable	-	2,688
Contract assets	13,319	34,325
Inventories	12,809	9,657
Prepayments and other assets	2,091	2,108
	50,395	70,258
Non-current assets
Prepayments and other assets	2,868	2,877
Development costs	10,597	9,045
Contract assets	18,079	-
Property, plant, and equipment	20,698	38,703
Intangibles	-	655
Total assets	102,637	121,538
LIABILITIES AND DEFICIENCY
Current liabilities
Bank indebtedness	-	76,708
Accounts payable and accrued liabilities	19,792	27,932
Term debt	3,041	16,868
Contract liability	18,625	11,502
Onerous contract provision	1,324	282
Deferred government grant	-	657
Customer advance	-	5,911
Guarantee fee	-	8,178
	42,782	148,038
Non-current liabilities
Bank indebtedness	74,412	-
Term debt	26,156	19,168
Contract liability	4,843	3,189
Accounts payable and accrued liabilities	2,011	-
Onerous contract provision	540	283
	150,744	170,678
(Deficiency) Equity
Capital stock	86,456	86,219
Contributed surplus	6,742	5,478
Accumulated other comprehensive income	8,145	8,082
Accumulated deficit	(149,450)	(148,919)
	(48,107)	(49,140)
Total liabilities and deficiency	102,637	121,538

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

FOR THE YEAR ENDED DECEMBER 31	2021	2020
Revenues	$99,476	$150,962
Cost of sales	99,546	142,729
Gross (loss) profit	(70)	8,233
Administrative and general expenses	18,277	16,717
Office equipment depreciation	723	787
Accommodation agreement settlement	(21,391)	-
Impairment loss	7,815	-
Other income	(8,180)	(11,642)
Operating income	2,686	2,371
Finance costs – net	3,091	7,605
Foreign exchange (gain) loss	(295)	364
Net loss on sale and write-off of equipment	421	1,127
Loss before income tax	(531)	(6,725)
Income tax expense	-	-
Loss for the year	(531)	(6,725)
Other comprehensive income	63	1,028
Total comprehensive loss for the year	(468)	(5,697)
Loss per share:
Basic loss per common share	(0.00)	(0.02)
Diluted loss per common share	(0.00)	(0.02)
Basic weighted average number of shares outstanding (000's) (note 32)	368,257	368,118
Diluted weighted average number of shares outstanding (000's) (note 32)	368,257	368,118

CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars)

FOR THE YEAR ENDED DECEMBER 31		2021	2020
Cash flows from operating activities
Net loss for the year		$(531)	$(6,725)
Adjustment for items not affecting cash:
Net interest expense		3,091	7,605
Depreciation		7,147	8,338
Development cost amortization		1,404	8,955
Intangible assets amortization		91	1,197
Loss on disposal of equipment		421	1,127
Provision for onerous contracts		1,299	308
Stock based compensation		1,389	32
Provision for obsolete inventory		2,030	(163)
Provision for doubtful accounts		4	(326)
Unrealized foreign exchange		(235)	(694)
Government grant income		(3,437)	(6,632)
Accommodation agreement settlement		(21,391)	-
Impairment Loss		7,815	-
Loss on lease modification		204	-
Cash (used in) flows from operating activities before changes in non-cash working capital		(699)	13,022
Changes in non-cash working capital
Accounts receivable		5,536	9,195
Contract assets		2,879	(8,270)
Inventories		(5,157)	3,397
Prepayments and other assets		2,850	13
Accounts payable and accrued liabilities		894	(10,265)
Deferred government grant		(657)	-
Contract liability		(743)	2,033
Net cash from operating activities		4,903	9,125
Cash flows used in investing activities
Proceeds from sale of equipment		852	61
Purchase of equipment		(2,221)	(1,769)
Payments relating to development costs and tooling		(2,956)	(3,929)
Receipt of government grants for purchase of equipment		147	-
Initial lease payments and other direct costs incurred		-	(31)
Net cash used in investing activities		(4,178)	(5,668)
Cash flows used in financing activities
Proceeds from bank indebtedness		1,266	653
Repayment of bank indebtedness		(2,105)	(7,368)
Payment of interest		(2,441)	(3,954)
Proceeds from term debt		2,508	12,453
Repayment of term debt		(3,047)	(2,524)
Proceeds from Issuance of Common Shares		112	-
Net cash used in financing activities		(3,707)	(740)
Net (decrease) increase in cash		(2,982)	2,717
Net foreign exchange difference		(2)	11
Cash - Beginning of the year		7,044	4,316
Cash - End of the year		4,060	7,044

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
(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, 2019	368,118,620	86,219	5,446	(142,194)	7,054	(43,475)
Stock-based compensation expense	-	-	32	-	-	32
Unrealized currency gain on translation for the period	-	-	-	-	1,028	1,028
Net loss for the period	-	-	-	(6,725)	-	(6,725)
Balance at December 31 2020	368,118,620	86,219	5,478	(148,919)	8,082	(49,140)
Balance at December 31, 2020	368,118,620	86,219	5,478	(148,919)	8,082	(49,140)
Issue of Common Shares	2,812,500	112	-	-	-	112
Transfer to share capital on exercise of stock options	-	125	(125)	-	-	-
Stock-based compensation expense	-	-	1,389	-	-	1,389
Unrealized currency gain on translation for the period	-	-	-	-	63	63
Net loss for the period	-	-	-	(531)	-	(531)
Balance at December 31, 2021	370,931,120	86,456	6,742	(149,450)	8,145	(48,107)

Forward-Looking Statements Disclaimer

This release should be read in conjunction with the Company's management discussion and analysis ("MD&A") and audited financial statements contained in the Company's Annual Report and accompanying notes filed with Sedar (www.sedar.com).

This press release includes forward-looking statements, which may involve, but are not limited to: statements with respect to our business objectives, prospects, and  guidance in respect of various financial and industry metrics, including, goals, strategies, capabilities, market position,  competitive strengths,  prospects, plans, expectations, anticipations, estimates and intentions; business and economic, industry trends; customer demand for products; order backlog mix; the  regulatory environment and legal proceedings; strength of our balance sheet, creditworthiness, capital resources, anticipated financial requirements, productivity enhancements, operational efficiencies, cost reduction and the intended benefits and timing thereof; availability of government assistance programs, compliance with debt covenants; and the impact of the COVID-19 pandemic on the foregoing; expectations regarding gradual market and economic recovery in the aftermath of the COVID-19 pandemic.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "shall", "can", "expect", "estimate", "intend", "anticipate", "plan", "forecast", "foresee", "believe", "continue", "maintain" or "align", the negative of these terms, variations of them or similar terminology.

Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of our current objectives, strategic priorities, expectations, outlook, and plans, and to obtain an understanding of our business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

Forward-looking statements require management and the Board to make assumptions and are subject to and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecast results set forth in forward-looking statements and in this press release. While management and the Board consider these assumptions to be reasonable and appropriate based on information currently available, there is risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this press release in relation to the five-year forecast include the following material assumptions: the award and fulfilment of customer contracts that the Company does not currently have in its backlog, the continuation of existing customer programs and anticipated labour costs associated with our operations for the periods covered in the forecast. Additional information, including with respect to other assumptions and risk factors underlying the forward-looking statements made in this press release, refer to the risk factors in both our MD&A, Annual Report and our Annual Information Form for the fiscal year ended December 31, 2021. Given the impact of the changing circumstances surrounding the COVID-19 pandemic, there is inherently more uncertainty associated with the Corporation's assumptions as compared to prior years.

Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, risks associated with overall global and domestic economic conditions, risks associated with our business environment (such as risks associated with the financial condition of our customers; increased competition from international and domestic suppliers; force majeure events), operational risks such as the award of new business; order backlog; the execution of customer orders; cash flows and capital expenditures based on cyclicality;  productivity enhancements, operational efficiencies, cost reduction initiatives; product  warranty; regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers, contracts and suppliers; supply chain risks; human resources; reliance on information systems; reliance on and protection of intellectual property rights; adequacy of insurance coverage), financing risks (such as risks related to liquidity and access to capital markets; substantial debt and interest payment requirements; debt covenants), market risks (such as foreign currency fluctuations; changing interest rates; increases in commodity prices; and inflation rate fluctuations). For more details, see the Risks outlined in our MD&A. The foregoing factors may be exacerbated by the ongoing COVID-19 outbreak and may have a significantly more severe impact on the Corporation's business, results of operations and financial condition than in the absence of such outbreak. As a result of the current COVID-19 pandemic, additional factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: risks related to the impact and effects of the COVID-19 pandemic on economic conditions and financial markets and the resulting impact on our business, operations, capital resources, liquidity, financial condition, margins, prospects and results; uncertainty regarding the magnitude and length of economic disruption as a result of the COVID-19 outbreak and the resulting effects on the demand for our products and services; emergency measures and restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions; disruptions to global supply chain, customers, workforce, counterparties and third-party service providers; further disruptions to operations, orders and deliveries; technology, privacy, cyber security and reputational risks; and other unforeseen adverse events.

The forward-looking statements present certain non-IFRS financial measures to assist readers in understanding the Company's forecasted performance. Non-IFRS financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP").

The foregoing list of factors that may affect future results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements. The forward-looking statements set forth herein reflect management's expectations as at the date of this press release and are subject to change after such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

SOURCE Avcorp Industries Inc.

Ruth MacDonald, 604-587-4938