UPDATED: AEP CEO & President Letter to Shareholders

NANAIMO, BC, March 25, 2020 /CNW/ - This news release contains updated information with respect to the Province of Ontario's mandated non-essential business closures and their expected effects on our Ontario operations. AEP has been deemed an essential business and all of locations across Canada, to date, remain open. References to mandated plant closures in Ontario have been removed from this Updated CEO & President's Letter. Readers are cautioned that government responses and announcements with respect to the novel coronavirus continue to evolve at a rapid pace. We are closely monitoring both the Federal and Provincial announcements and regulations, with respect to mandatory business closures, and we will act accordingly, and if, or where applicable, in-line with the business' overall operational requirements.

This correction does not change any other information reported in the Initial Press Release.

Dear AEP Shareholder,

During these unprecedented times, we continue to closely monitor the situation at each one of our locations. We have developed a proactive company-wide approach and response to how we navigate potential impacts to AEP, maintain our social responsibilities as well as minimize the spread of the Coronavirus (COVID-19). We have a solid business continuity and interruption plan, which we are diligently executing.

I remind you ALL, that the AEP Executive Team is completely committed to the Company's long-term success and fully aligned with shareholders, reflected in the high level of insider ownership. They actively manage the well-being of our employees, AND are constantly focused on the operational and financial health of AEP too. With that in mind, we would like to share with you, our view on the current state-of-affairs at AEP.

CORONAVIRUS (COVID-19):
We would like to highlight that to-date, AEP does not have any confirmed cases of COVID-19, at any of our operations, and so far, have not had any known instances of exposure to the virus. That said, we have developed, following federal and provincial agency guidelines, certain policies, procedures and operating instructions to keep ourselves and our families safe. During this time, we have and continue to educate our organization, identify and ensure the health of high-risk individuals, send any individuals with symptoms home and/or prohibit them from entering our facilities.

We continued to promote remote working, for functions that can, and we have established respiratory and hygienic etiquettes as well as designed a temporary sick leave policy that encourages employees to take care of themselves and their family members. When situations became more serious, we stopped all non-essential travel and ensured that all employees were brought home to their families. In order to accommodate remote work, we have implemented technology protocols and encouraged employees to utilize virtual meeting and collaboration platforms.

As recent as Monday, March 23^rd, the Province of Ontario announced that it is mandated that all non-essential businesses will close by end day, Tuesday March 24^th 2020, for a minimum of a 2-week period. AEP has been deemed an essential business and all of locations across Canada, to date, remain open. We continue to monitor this closely and will respond to provincial and federal updates accordingly.

At AEP it really is a philosophy of STAY SAFE, STAY HEALTHY.

BUSINESS UPDATE:
AEP entered its third year as a public company this quarter ending March 31^st, 2020 and we believe now is an opportune and appropriate time to reflect on our progress to-date, comment on what we see as our path forward, and showcase to you, our shareholder, some key messages for 2020 and beyond.

In short, despite the current challenges and unknown effects of COVID-19 as it relates to our business, AEP is in a solid financial position.

After a challenging 2018, and a slowly recovering Q1 2019 we demonstrated exceptional revenue and margin growth success throughout the year ending December 31, 2019. The steps that were taken in 2019 have set the stage for a solid 2020 year. A few projects scheduled for the end of 2019 were moved into Spring 2020, yet overall we successfully executed a tremendous turn-around in the last 3 quarters of 2019. We exceeded our EBITDA targets for 2019 and expect to end in the 11%-14% EBITDA Margin Range for the year.

As we get closer to the end of Q1 2020, we are confident that revenues should exceed Q1 2019. This is a tremendous feat and a testament to the commitment and hard work of Team AEP.

For a visual snapshot of what we have achieved during the first three quarters of 2019, please follow this link: https://www.linkedin.com/feed/update/urn:li:ugcPost:6647341984535191552/   

Here is a brief look at what we have done since listing in November 2017:

• Year 2018:
• November 2017 saw concept to reality for AEP with closing the RTO transaction and listing on the TSX-V; and
• After listing, AEP demonstrated its ability to identify and close on multiple acquisitions in British Columbia and Ontario, adding growth and capabilities at reasonable valuations.

• Year 2019:
• AEP evaluated and developed integration plans to address operational and financial improvements in the newly acquired companies;
• In the spring of 2019, the acquisition of SC Building Systems in Manitoba, allowed AEP to enter the Prairies and expand into new geographical markets. Meanwhile we penetrated the North and South Vancouver Island markets and targeted areas in Ontario to ensure a comprehensive national footprint of product and service delivery; and
• We aggressively focused on product diversification, delivered record revenues which successfully generated significant improvements in EBITDA.

• Year 2020 and beyond:
• We started 2020 in the best financial position in the AEP's history, on the back of a phenomenal turn-around in 2019 and successfully closing an oversubscribed Private Placement for gross proceeds of over CAD $4.5 million;
• We will continue to be focused, fiscally disciplined, action strategic on-going improvements, and target activities aimed at margin expansion;
• We have and continue to revise and re-structure our financing and capital structures to optimize our future profitability; and
• AEP maintains a perpetual view of expanding existing territories while growing organically into new markets as well as actively assessing and negotiating acquisitions during a time of great valuation opportunities.

PRODUCT DEVELOPMENT & DIVERSIFICATION:
During 2019, we executed on our plan to develop and commercialize new product offerings such as: wall panel manufacturing, engineered wood supply, and floor truss manufacturing. We have now implemented this capability at many of our locations. Our ability to provide an array of products, to each of our customers' projects, has the potential to increase our wallet share of each project by a factor of up to 3 or 4.

We won several contracts across these product lines in 2019 and into 2020. We have successfully delivered to-date wall panels, engineered wood and roof trusses to a boutique hotel in Michigan as well as numerous residential projects in Ontario. Into 2020 and beyond, we believe the additional revenues from this product diversification strategy will continue to drive strong organic growth rates.

PROFESSIONALIZING THE SALES & DESIGN TEAMS:
Upgrading the design software to a standard, best-of-class, platform across our locations, not only led to significant productivity and efficiency gains in our existing products, but it gave us the design capability to successfully roll out diversified products as well. We now can continue to distinguish ourselves as a true solutions provider in the engineered wood, roof truss, structural floor product and prefabricated wall verticals in the residential, multi-residential, light commercial and industrial construction and building sectors.

We have also added new sales staff across the group, establishing a professional sales system and process, instilling sales discipline and focused leadership, resulting in a growing order book. This new sales team transitioned many of the previously held sales relationships to a professionally managed salesforce, assessed and targeted new geographical markets to cover and penetrate, as well as develop new market segments within established geographies. Today, we have expanded our customer profile to include lumber yards, single and multi-residential residential builders and developers, subdivision developers, light commercial and industrial such as hotels, community shopping and services centers, social infrastructural developments and more.

PRODUCTIVITY, INNOVATION & TECHNOLOGY:
In 2019 we made significant improvements to workflows, enhanced efficiencies and increased productivities, at all of our locations. Given that historically Q1 is the slowest construction, quarter we continue to focus on improving productivity that will improve results in ensuing quarters. As was the case in Q1 2019, we intend to have capital and maintenance expenditures in order to assist margin expansion for the rest of the year.

On the Equipment side we:

• Purchased a new world-class, quick and precise component saw for our Atlas operation. This new saw replaced several pieces of equipment, adds approximately 60% extra capacity as well as increases quality and control;
• Procured a truss manufacturing table and a saw as well as transferred saws from the assets acquired from Alberta Truebeam Ltd. ("Truebeam"), for our Clinton operation;
• Transferred and installed manufacturing tables, from Truebeam, at our Satellite operations to increase capacity and productivity;
• Allocated delivery trucks, from Truebeam, to our Satellite and Clinton operations; and
• During 2020/21 our capital needs are focused on further workflow improvements and automation activities. We target automating some key manufacturing stations that will lead to significant labor savings and improve quality tremendously. These upgrades will be fully integrated into our manufacturing and design control systems and we expect will have impressive paybacks as a result;

On the Technology side we:

• As mentioned before, we upgraded ALL of our locations to a leading platform of design and engineering. This is cutting edge design and manufacturing technology strategically connects with our targeted standardized ERP development, planned for the backend of 2020. The systems will fully integrate into our operational management and control systems and will contribute to maximizing synergies and eliminating duplication across the group;
• We developed new websites for AEP and the operating companies, as well as redesigned our social media presence in platforms such as Twitter, LinkedIn & Facebook;
• Our team selected and implemented a standardized business and productivity suite and successfully migrated all accounts; and
• We reviewed all operation and group IT infrastructure, and earmarked our infrastructure development plan for 2020-2023;

INVESTING IN OUR PEOPLE:
Our people continue to be our highest yielding asset. The success of our business relies on our people and our philosophy involves one of continuous improvement.

The majority of our customers require engineering and design excellence and expertise. We have invested significantly to train and develop in this area as well as technology application. We have also identified and developed leadership training and mentorship opportunities, to foster a culture of excellence.

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 hold approximately 35% of shares outstanding, and I believe that speaks volumes not only to the alignment with our shareholders, 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, also assumes significant risk in the outcome of decisions made.

FINANCING:
AEP has been strategic in its financing. Proceeds from our 2018 private placement partially financed our Pacer and the South-Central acquisitions, both which added significant revenues to the AEP. Proceeds from our February 2020 private placement are earmarked for our 2020 acquisition plan, capital needs and working capital. This financing was oversubscribed, and again insiders contributed significantly.

Based on our current financial position and assuming cash flows from existing operations remain steady, AEP is well capitalized to execute on its strategic plan for organic and inorganic growth. 

CURRENT DEBT FACITLITIES:

The Company's debt can be broken into 4 categories as follows:

1)	A revolving credit facility – AEP has a CAD $1.75 million revolving credit facility by a major Canadian bank. It may be used for working capital purposes if required. Today it is undrawn;
2)	Term loans – Each term loan has an amortization between 5-7 years and was acquired to assist with the completion of our Clinton, SC, and Pacer acquisitions;
3)	Mortgage Debt – All properties we have acquired from acquisitions have mortgage debt on those locations. This has allowed us to maintain cash while having a loan that is amortized over 15-20 years. We continually evaluate whether owning our plants is desirable and analyze sale & leaseback opportunities in determining the optimal capital structure for the business; and
4)	Equipment Debt – The Company has various assumed and new equipment and vehicles under financing or under a leaseback program with our main financial institution.

THE AEP OVERACHING STRATEGY:
Our accelerated success in 2019 was achieved through internal operational improvements, solid integration practices and organic growth, which led to greater profitability. We also remained focused on the goal of identifying qualified, accretive acquisition targets. We believe that market trends remain in our favour, and under current conditions and succession demographics we continue to see attractively priced target companies. We will prudently and aggressively look to take advantage of acquisition opportunities. With shortages of skilled labour continuing to drive demand for assembled components and engineered products, as well as the inability of independently owned and operated companies to match required investments for latest technologies, AEP finds itself in a very strong position to continue growing profitably.

I have highlighted multiple times, that AEP has "First Mover Advantage", in consolidating a highly fragmented, multi-billion-dollar industry. This industry faces severe succession challenges and significant segmentation that have contributed to small regional players that do not have the leverage to reduce costs or make significant investments in equipment and/or technology. I continue to believe that AEP is a truly compelling story.

Our view is that each business acquired, or each new location opened organically, will integrate into the group in an organized and disciplined fashion. With this strategy, we have proven that we can synergize and create a growing stable of businesses in multiple locations, that each will produce positive cash flows. With a goal of compounding revenues and profits, positive cash flows will be strategically reinvested either at the local level, if the rationale is compelling, or into other areas that hold higher return potentials.

We have operations in our portfolio currently generating EBITDA higher than the original contribution of cash paid for their acquisition. This underlies our belief that our operations and AEP can generate high returns on invested capital in the long run. We continue to work this formula for success through all our operations.

I am often asked about acquisition structure, specifically, the deal mechanics and transaction size. As part of our Smart Acquisition Criteria, we consider both small and large opportunities. Based on history, we have demonstrated our ability to find and complete multiple types of acquisitions. The advantage of operating in such a fragmented industry is the ability to increase the number of acquisitions in a given year, if circumstances warrant, or to consider larger transactions if the risk profile is appropriate.

IN SUMMARY:
We are living in an extraordinary world, during unprecedented times, where the spread of COVID-19 has impacted communities globally and created immense uncertainties. AEP is a healthy and fundamentally sound business. We have a healthy amount of cash as well as a clearly defined, and implemented, cash preservation strategy as a part of our business continuity and/or interruption plans for uncertain periods such as this. We believe that we are well positioned to weather a storm and today, we continue to manufacture from all of our locations. We continue to monitor any changes to the operating environment and have a response plan that we can, and will, modify as necessary to continue to protect AEP's cash resources. Our plan includes scaling down our costs and cash outflows, to match that with revenues, where and when applicable.

AEP is well positioned compared to its peers and industry. Looking forward, we are encouraged that monetary and fiscal stimuli, applied by governments world-wide, typically have positive effects on our industry.

AEP remains customer-focused, providing quality solutions and products, achieved through operational excellence. I am both humble and proud of our amazing group of employees that continue to deliver extraordinary results through their dedication and commitment – and we have only just started!

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.  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., Dirk Maritz, CEO & President, Phone: [phone], Email: [email protected], Unit 102, 6551 Aulds Road, Nanaimo, BC V9S 5X9, www.atlasengineeredproducts.com; For investor relations please contact: Rob Gamley, Phone: [phone], Email: [email protected], Contact Financial Corp., 810 - 609 Granville St., Vancouver, BC V7Y 1G5