CEO & President Letter to Shareholders

NANAIMO, BC, April 24, 2020 /CNW/ -

Dear AEP Shareholders,

During these unprecedented times, we continue to closely monitor the situation at each one of our locations and adapt our response and plans accordingly. We have developed a proactive company-wide strategy and initiated a response to reduce the potential impacts to AEP, maintain our social responsibilities, and minimize the spread of the coronavirus (COVID-19). We have a solid business continuity and interruption plan, which we are diligently executing.

The AEP Executive Team is wholly committed to the Company's long-term success and is fully aligned with AEP's shareholders as reflected in our high level of insider ownership. Our Executive Team is actively managing the well-being of our employees and is expertly focusing on the operational and financial health of AEP. With that in mind, we would like to provide you with this update on AEP's current position.

At AEP our focus remains: STAY SAFE, STAY HEALTHY.

CORONAVIRUS (COVID-19):
To date, AEP continues to advocate and uphold a safe working environment. We have developed clear policies, procedures and operating instructions to keep our teams healthy and safe. Our facilities have been repeatedly commended by the provincial Work Safe bodies for following federal, provincial and industry guidelines, and for quickly assessing, implementing and amending best practices within our organization as new information is released by the Public Health Authorities. We continue to educate our organization, customers, and stakeholders, identify and safeguard the health of high-risk individuals, and send individuals with active symptoms home, to isolate them from our facilities.

We continue to promote remote working where possible, we have established robust hygienic protocols, and we have designed, and implemented, a temporary sick leave policy that encourages employees to take care of themselves and their family members. We have paused all non-essential travel and ensured that all traveling employees were brought home to their families. In order to maintain successful business functions, we have implemented new technology protocols and encouraged employees to utilize virtual meeting and collaboration platforms; this has allowed us to continue to serve our customers. We are very proud of the actions taken and our team's ability to adapt and change to our new way of working. Their commitment and candor is truly phenomenal!

AEP continues to be deemed an essential business and all of locations across Canada remain open at this time.

BUSINESS UPDATE:
We are continuously monitoring the developments and changes to our environment due to the spread of COVID-19. AEP continues to be deemed an essential business in all jurisdictions in Canada.

ALL of our locations across Canada are open for business.

The AEP footprint, by design, significantly improves and enhances our medium to long term consolidated business continuity. It also distributes and minimizes the risk of major business interruption and/or shutdown between all locations. We have 2 businesses in British Columbia, 1 in Manitoba and 3 in Ontario.

AEP has a nearly even, 45/55, revenue split between Western and Eastern operations, respectively. The geographical spread of our operations has largely softened and offset any potential impacts to revenue due to the COVID-19 pandemic. In March and April 2020, data suggests that the coronavirus did not spread across all locations and provinces at the same time, or hit all locations and its builders equally:

• BC – It appears the curve is flattening dramatically and a disciplined reopening of the economy, without risking public health, is a very real possibility in the coming weeks. Our BC operations have been diligent, and therefore have provided stronger topline revenue than prior years. We continue to win new significant contracts, and we believe that we will maintain a stronger revenue performance into the building season.
  
  
• Manitoba - Winter is gone AT LAST! To date, it appears Manitoba has seen limited impacts from COVID-19. Market activity continues to accelerate, and quoting activity continues to increase, as usual for this time of year.
  
  
• Ontario – Our Ontario operations have seen the most restrictions due to COVID-19, as mandated by the provincial government. Despite that they have had a strong revenue performance for Q1 2020. Our operations are deemed essential services, and we continue to serve our customers. With so many restrictions, we have prepared and anticipated that revenues may be down at our Ontario operations for April and/or May. That said, Spring is approaching, and we are seeing increases in quoting activity every day. We also believe that when the Province of Ontario eases its lock-down measures, in the coming weeks, we will see projects accelerating even more.

Consolidated – Up to the end of Q1 2020, AEP has seen revenues that surpass Q1 2019. This is a tremendous feat and a testament to the commitment and hard work of Team AEP.

Year 2020 and beyond:

• We started 2020 in the best financial position of AEP's history since going public in November of 2017, on the back of a strong turn-around in 2019, and an oversubscribed private placement for gross proceeds of over CAD $4.5 million.
• We remain fiscally disciplined while dedicated to strategic improvements and growth activities aimed at margin expansion.
• We continue to assess our financial and capital structures to optimize our future profitability.
• We uphold our strategy to expand existing territories while growing organically into new markets.
• We continue to assess and negotiate acquisitions and strategic partnerships during a time of great valuation opportunities.

Despite the current challenges and future effects of COVID-19, AEP remains confident. We generated strong revenues up until the end of March 2020, and we continue to be in a good financial position to withstand significant adversity.

Short-term Profitability vs Cash Preservation:

We have implemented rigorous social distancing initiatives in our operations (e.g. creating safe physical distances between employees by expanding the areas between workstations and utilizing more surface area on equipment), promoted and implemented remote working, established clear hygienic protocols, employed new/advanced technology protocols, and scheduled maintenance activities typically scheduled in other times of the year. These critical and necessary activities result in some reduced productivity and/or efficiency, resulting in a higher cost profile and potential impact on some product margins.

We also looked at a wide variety of cash preservation options, including a focus on "cash first priorities", in some instances, these activities compete with AEP's short-term profitability. However, these strategies are designed to preserve the cash we have in the event of business interruptions, and therefore work to reinforce our strong financial position and our ability to weather this virus.

We assertively scaled the business to current revenue profiles, laid-off non-essential positions and terminated non-essential contracts (including those filled to support strategic partnerships and potential acquisitions in early 2020). We evaluated all areas of the business and reduced hours to match any reductions in work and/or projects. The AEP Senior Leadership Team also took a salary sacrifice in the interim.

These short to medium term initiatives will have a major impact on how AEP will operate in 2020. Cash is King and our business continuity plan ensures that we maximize every dollar and cent.

Although COVID-19 is unprecedented, things are looking promising in the regions we serve. AEP continues to plan, adapt, and remain open to opportunities as we look for new and creative ways to do business and grow during these uncertain times. AEP is well capitalized; We have liquidity,  fiscal discipline and continue to win significant new contracts – all factors that allow us to carry ourselves now and into the future.  

INSIDER OWNERSHIP:
Since the beginning, insiders have held significant ownership positions in AEP, participating in multiple financings. I am proud to recap that insiders and employees continue to hold approximately 35% of our outstanding shares. This speaks volumes, not only to shareholder alignment, but also the confidence that insiders have in the future and direction of AEP. I am reassured by the fact that the individuals (Board, Leadership and Employees) who have the most insight into AEP, are also among the most committed to the outcome of the decisions made.

THE AEP OVERACHING STRATEGY:
Our accelerated success in 2019 was achieved through strategic operational improvements, solid integration practices and organic growth, which lead to greater profitability. We remained focused on the goal of identifying qualified targets and acquiring them in a disciplined manner. We believe that market indicators continue to trend in favour of attractively priced target companies and the synergies and advantages of a larger, geographically spread, group is compelling. As COVID-19 creates a macroeconomic event that will facilitate consolidation in many industries, AEP finds itself in a very strong position to continue organic and profitable growth through acquisition.

IN SUMMARY:
We are living in an extraordinary world, during unprecedented times, where the spread of COVID-19 has impacted communities globally and created enormous uncertainty. To date, AEP continues to be deemed an essential business in every territory it operates. We have liquidity, fundamentally sound business practices, a skilled management team, and we have a healthy amount of cash paired with a well-defined and implemented cash preservation strategy.

Furthermore, as a part of our business continuity and/or interruption plans, we continue to action opportunities for growth. We believe that we are well positioned to weather this storm. AEP is continually monitoring the ever-changing operating environment and modifying accordingly to protect AEP's cash resources. Our plan includes scaling down our costs and cash outflows to match revenues where and when applicable.

AEP is well positioned, and we are starting to see an increase in anticipation and energy amongst our customers and partners for the future. Looking forward, we are encouraged that monetary and fiscal stimuli, applied by governments world-wide, will positively affect our industry and support the much-needed ramp-up in the coming months.

We remain thankful to our many supporters and shareholders. I am so proud of our amazing group of employees that continue to dedicate and commit their time and energy – not only to AEP – but also to their communities in this challenging time.

To our first responders, essential workers, and the health care providers – THANK YOU – we are deeply grateful for your selfless acts of courage.

Regards,

Dirk Maritz,
CEO & President

Forward Looking Information
Information set forth in this news release contains forward-looking statements. These statements reflect management's current estimates, beliefs, intentions and expectations; they are not guarantees of future performance. Although AEP believes that the expectations reflected in the forward looking statements are reasonable, there is no assurance that such expectations will prove to be correct, or that such future events will occur in the disclosed time frames or at all.  AEP cautions that all forward looking statements are inherently uncertain and that actual performance may be affected by a number of material factors, many of which are beyond AEP's control.  Such factors include, among other things: Risks and uncertainties relating to AEP, including those to be described in the Management's Discussion and Analysis ("MD&A") for AEP's three and nine months ended September 30, 2019.  In addition, the COVID19 pandemic has had a largely unprecedented and unpredictable impact, and could negatively impact the demand for AEP's products and services, the ability to collect accounts receivable or ability to maintain its operations.   Accordingly, actual and future events, conditions and results may differ materially from the estimates, beliefs, intentions and expectations expressed or implied in the forward-looking information. Except as required under applicable securities legislation, AEP undertakes no obligation to publicly update or revise forward-looking information.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

SOURCE Atlas Engineered Products Ltd.

Atlas Engineered Products Ltd., Phone: [phone], Email: [email protected], Unit 102, 6551 Aulds Road, Nanaimo, BC V9S 5X9, www.atlasengineeredproducts.com; For investor relations please contact: Brittany Ray-Wilks, Executive Vice President, Phone: [phone], Email: [email protected], Atlas Engineered Products Ltd., Unit 102, 6551 Aulds Road, Nanaimo, BC V9S 5X9, www.atlasengineeredproducts.com