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Firan Technology Group Corporation ("FTG" or "the Corporation") Announces Third Quarter 2018 Financial Results

/EIN News/ -- TORONTO, Oct. 10, 2018 (GLOBE NEWSWIRE) -- Firan Technology Group Corporation (TSX:FTG) today announced financial results for the third quarter 2018.

  • Achieved record third quarter sales of $25.0M, an increase of 31% over Q3 2017
  • Grew Circuits segment by 22% over Q3 last year
  • Grew Aerospace segment by 50% over Q3 last year
  • Achieved $2.7M EBITDA, an increase of $0.9M over Q3 last year
  • Grew Q3 2018 net income by 320% over same period last year

“The third quarter of 2018 came in as expected for the summer months, which typically experience a drop in sales from Q2 due to higher vacations and fewer production days,” stated Brad Bourne, President and Chief Executive Officer. He added, “Sales and profitability were up dramatically from Q3 last year again demonstrating the transition activities are mostly behind us.  We will continue to work on managing transition and one-time costs in our Chatsworth operations.”

Third Quarter Results: (three months ended August 31, 2018 compared with three months ended September 1, 2017)

    Q3 2018     Q3 2017  
     
Sales $ 25,001,000   $ 19,144,000  
             
Gross Margin   5,909,000     5,199,000  
Gross Margin (%)   23.6 %   27.2 %
     
Operating Earnings (1):   2,580,000
    2,278,000
 
             
• Net R&D Investment   979,000     1,668,000  
• Foreign Exchange Loss (Gain)   (34,000 )   (272,000 )
• Recovery of Investment Tax Credits   (205,000 )   (166,000 )
• Amortization of Intangibles   266,000     273,000  
     
Net Earnings before Tax   1,574,000     775,000  
     
• Current Tax Expense   15,000     14,000  
• Deferred Tax Expense   916,000     623,000  
• Non-controlling Interests   (4,000 )   (16,000 )
Net Earnings After Tax $ 647,000   $ 154,000  
Earnings per share    
- basic $ 0.03   $ 0.01  
- diluted $ 0.03   $ 0.01  
             

Year-to-Date Results: (nine months ended August 31, 2018 compared with nine months ended September 1, 2017)

    YTD 2018     YTD 2017  
     
Sales $ 81,407,000   $ 71,829,000  
             
Gross Margin   17,998,000     17,838,000  
Gross Margin (%)   22.1 %   24.8 %
     
Operating Earnings (1):   7,720,000

    7,876,000

 
             
• Restructuring   195,000     -  
• Net R&D Investment   3,200,000     4,924,000  
• Foreign Exchange Loss (Gain)   (164,000 )   (229,000 )
• Recovery of Investment Tax Credits   (568,000 )   (495,000 )
• Amortization of Intangibles   783,000     840,000  
     
Net Earnings before Tax   4,274,000     2,836,000  
     
• Current Tax Expense   55,000     (10,000 )
• Deferred Tax Expense   2,591,000     1,802,000  
• Non-controlling Interests   (21,000 )   (34,000 )
Net Earnings After Tax $ 1,649,000   $ 1,078,000  
Earnings per share    
- basic $ 0.07   $ 0.05  
- diluted $ 0.07   $ 0.04  
             
  1. Operating Earnings is not a measure recognized under International Financial Reporting Standards (“IFRS”).  Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating Operating Earnings may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Business Highlights

FTG accomplished many goals in the third quarter of 2018 that continue to improve the Corporation and position it for the future, including:

  • Began shipments to Flight Safety International for the KC-46 simulator program
  • Shipped first set of the redesigned cockpit control devices for the third test aircraft for the C919 program in China
  • Completed qualification testing of the cursor control device for a helicopter program and are progressing through Transport Canada approval
  • Completed qualification testing of a cockpit power supply for the LE-700 training aircraft in China
  • Achieved sales resulting from the 2016 acquisitions of $5.4M versus our target of $5.5M
  • Received Authorization to Proceed on a new military helicopter simulation program with an expected value between $1-2M USD
  • Received our first ever patent for High Temperature Rigid Flex circuit board technology in the UK
  • Won a contract to develop cockpit panels for the Orion manned spacecraft being developed for NASA
  • Completed our first robotic automation project including Industry 4.0 technology at our Circuits Toronto facility

For FTG, overall sales increased by $5.9M or 30.6% from $19.1M in Q3 2017 to $25.0M in Q3 2018.  Both the Circuits and Aerospace segments contributed to the growth.  Also contributing to the growth was the weakening of the Canadian dollar by 2.5 cents in Q3 this year compared to the same period last year.  For the year-to-date, sales were up $9.6M or 13.3% due to the above items plus the one time revenue recognition of $5M from the C919 program in Q1 2018. 

The Circuits Segment sales were up $3.0M or 22.1% in Q3 2018 versus Q3 2017.  On a year-to-date basis, Circuits sales were up by $1.3M or 2.8%. 

For the Aerospace segment, sales in Q3 2018 were $8.6M compared to $5.7M in the same quarter last year resulting in a 50.6% growth rate. Year-to-date sales were up $8.3M or 31.4% in the Aerospace segment.

Gross margins in Q3 2018 were up $0.7M compared to Q3 2017.  The benefit of increased sales and lower costs were partially offset by a $0.95M inventory provision in Aerospace Chatsworth against inventory acquired in the two acquisitions in 2016.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for Q3 2018 was $2.7M and $9.2M for the trailing twelve months.

The following table reconciles EBITDA(2)  to the net earnings for Q3, 2018 and trailing twelve months.

    Q3 2018   Trailing Twelve Months
     
Net earnings $ 643,000 $ 1,791,000
Add:    
Interest   139,000   547,000
Income taxes/ITC   726,000   2,414,000
Depreciation/Amortization   1,166,000   4,483,000
     
EBITDA $ 2,674,000 $ 9,235,000
         
  1. EBITDA is not a measure recognized under International Financial Reporting Standards (“IFRS”).  Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating EBITDA may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Net profit after tax at FTG in Q3 2018 was $0.6M compared to a net profit of $0.1M in Q3 2017.  Q3 2018 had higher sales, lower R&D spending, offset by an inventory provision increase of $0.95M.    

The Circuits segment net earnings before corporate and interest and other costs was $3.0M in Q3 2018 compared to $1.7M in Q3 2017.

The Aerospace net earnings before corporate and interest and other costs in the quarter was ($0.7M) versus ($1.3M) in Q3 2017. Q3 2018 had an inventory provision increase of $0.95M.

As at August 31, 2018, the Corporation’s net working capital was $28.5M, an increase of $4.1M over year end 2017.  Higher accounts receivables, inventory and lower bank debt and lower accounts payable was offset by higher customer deposits.

Net debt to EBITDA, was 0.9:1 for the trailing 12 month period.

The Corporation will host a live conference call on Thursday, October 11, 2018 at 8:30 am (EDT) to discuss the results of Q3 2018.

Anyone wishing to participate in the call should dial 647-427-2311 or 1-866-521-4909 and identify that you are calling to participate in the FTG conference call. The Chairperson is Mr. Brad Bourne.  A replay of the call will be available until October 25, 2018 and will be available on the FTG website at www.ftgcorp.com.  The number to call for a rebroadcast is 416-621-4642 or 1-800-585-8367, Conference ID 8565389.       

ABOUT FIRAN TECHNOLOGY GROUP CORPORATION

FTG is an aerospace and defense electronics product and subsystem supplier to customers around the globe.  FTG has two operating units:

FTG Circuits is a manufacturer of high technology, high reliability printed circuit boards.  Our customers are leaders in the aviation, defense, and high technology industries.  FTG Circuits has operations in Toronto, Ontario, Chatsworth, California and a joint venture in Tianjin, China.

FTG Aerospace manufactures illuminated cockpit panels, keyboards and sub-assemblies for original equipment manufacturers of aerospace and defense equipment.   FTG Aerospace has operations in Toronto, Ontario, Chatsworth, California, Fort Worth, Texas and Tianjin, China.

The Corporation's shares are traded on the Toronto Stock Exchange under the symbol FTG.

FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements.  These forward-looking statements are related to, but not limited to, FTG’s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.  Such statements are based on the current expectations of management of the Corporation and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the Corporation’s industry, generally.  The preceding list is not exhaustive of all possible factors.  Such forward-looking statements are not guarantees of future performance and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation.  The reader is cautioned to consider these and other factors carefully when making decisions with respect to the Corporation and not place undue reliance on forward-looking statements. Other than as may be required by law, FTG disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

For further information please contact:

Bradley C. Bourne, President and CEO
Firan Technology Group Corporation
Tel: (416) 299-4000 x314
bradbourne@ftgcorp.com

Melinda Diebel, Vice President and CFO
Firan Technology Group Corporation
Tel:(416) 299-4000 x264
melindadiebel@ftgcorp.com

Additional information can be found at the Corporation’s website www.ftgcorp.com



FIRAN TECHNOLOGY GROUP CORPORATION    
Interim Condensed Consolidated Balance Sheets    
     
(Unaudited) August 31, November 30,
(in thousands of Canadian dollars) 2018
2017
ASSETS    
Current assets    
Cash $   2,481   $   2,752
Accounts receivable     18,477       17,983
Taxes receivable     134       209
Inventories     26,430       25,079
Prepaid expenses     1,242       1,506
      48,764       47,529
Non-current assets    
Plant and equipment, net     11,576       12,222
Deferred income tax assets     394       395
Investment tax credits receivable     5,043       6,420
Deferred development costs     268       681
Intangible assets and other assets, net     3,207       3,768
Total assets $   69,252   $   71,015
LIABILITIES AND EQUITY    
Current liabilities    
Bank indebtedness $   2,611   $   6,444
Accounts payable and accrued liabilities     12,779       13,341
Provisions     523       390
Customer deposits     2,397       1,268
Current portion of long-term bank debt     1,935       1,726
      20,245       23,169
Non-current liabilities    
Long-term bank debt     5,840       6,040
Deferred tax payable     1,810       1,696
Total liabilities     27,895       30,905
Equity    
Retained earnings $   10,461   $   8,812
Accumulated other comprehensive income     (412 )     187
      10,049       8,999
Share capital    
Common shares     19,323       19,295
Preferred shares     2,218       2,218
Contributed surplus     8,598       8,384
Total equity attributable to FTG's shareholders     40,188       38,896
Non-controlling interest     1,169       1,214
Total equity     41,357       40,110
Total liabilities and equity $   69,252   $   71,015
           


FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings
         
   Three months ended     Nine months ended 
(Unaudited)
(in thousands of Canadian dollars, except per share amounts)
August 31,
2018
  September 01,
2017
  August 31,
2018
  September 01,
2017
           
Sales $   25,001     $   19,144     $   81,407     $   71,829  
           
Cost of sales          
Cost of sales     18,304         13,253         61,142         51,908  
Depreciation of plant and equipment     788         692         2,267         2,083  
Total cost of sales     19,092         13,945         63,409         53,991  
Gross margin     5,909         5,199         17,998         17,838  
           
Expenses          
Selling, general and administrative     3,156         2,787         9,757         9,509  
Research and development costs     1,034         1,723         3,365         5,089  
Recovery of research and development costs     (55 )       (55 )       (165 )       (165 )
Recovery of investment tax credits     (205 )       (166 )       (568 )       (495 )
Depreciation of plant and equipment     34         25         99         91  
Amortization of intangible assets     266         273         783         840  
Interest expense on short-term debt     47         56         200         184  
Interest expense on long-term debt     92         53         222         178  
Foreign exchange (gain) loss     (34 )       (272 )       (164 )       (229 )
Restructuring expenses     -          -          195         -  
Total expenses     4,335         4,424         13,724         15,002  
           
Earnings before income taxes     1,574         775         4,274         2,836  
           
Current income tax expense     15         14         55         (10 )
Deferred income tax expense     916         623         2,591         1,802  
Total income tax expense     931         637         2,646         1,792  
           
Net earnings $   643     $   138     $   1,628     $   1,044  
           
Attributable to:          
Non-controlling interest $   (4 )   $   (16 )   $   (21 )   $   (34 )
Equity holders of FTG $   647     $   154     $   1,649     $   1,078  
           
Earnings per share, attributable to the equity holders of FTG          
Basic $   0.03     $   0.01     $   0.07     $   0.05  
Diluted $   0.03     $   0.01     $   0.07     $   0.04  
                               


FIRAN TECHNOLOGY GROUP CORPORATION          
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)      
             
     Three months ended     Nine months ended 
(Unaudited)
(in thousands of Canadian dollars)
  August 31,
2018
  September 01,
2017
  August 31,
2018
  September 01,
2017
             
Net earnings   $   643     $   138     $   1,628     $   1,044  
             
Other comprehensive income (loss) to be reclassified to net earnings            
in subsequent periods:            
             
Foreign currency translation adjustments       (166 )       (2,424 )       (210 )       (1,611 )
Net unrealized (loss) gain on derivative financial instruments                                
designated as cash flow hedges       (420 )       2,983         (551 )       1,839  
Tax impact       105         (746 )       138         (460 )
             
        (481 )       (187 )       (623 )       (232 )
             
Total comprehensive income (loss)   $   162     $   (49 )   $   1,005     $   812  
             
Attributable to:            
Equity holders of FTG   $   233     $   27     $   1,050     $   874  
Non-controlling interest   $   (71 )   $   (76 )   $   (45 )   $   (62 )
                                 


FIRAN TECHNOLOGY GROUP CORPORATION            
Interim Condensed Consolidated Statements of Changes in Equity        
                 
                 
Nine months ended August 31, 2018     Attributed to the equity holders of FTG      
          Accumulated      
          Other   Non-  
(Unaudited) Common Preferred Retained Contributed Comprehensive   controlling Total
(in thousands of Canadian dollars) Shares Shares Earnings Surplus Income (Loss) Total interest equity
                 
Balance, November 30, 2017 $   19,295 $   2,218 $   8,812 $   8,384   $   187   $   38,896   $   1,214   $   40,110  
Net earnings     -      -      1,649     -        -        1,649       (21 )     1,628  
Stock-based compensation     -      -      -      222       -        222       -        222  
Common shares issued on exercise of                                          
share options and PSU's     28     -      -      (8 )     -        20       -        20  
Foreign currency translation adjustments     -      -      -      -        (186 )     (186 )     (24 )     (210 )
Net unrealized gain (loss) on derivative financial                                          
instruments designated as cash flow hedges, net of tax impact     -      -      -      -        (413 )     (413 )     -        (413 )
Balance, August 31, 2018 $   19,323 $   2,218 $   10,461 $   8,598   $   (412 ) $   40,188   $   1,169   $   41,357  
                 
Nine months ended September 01, 2017     Attributed to the equity holders of FTG      
          Accumulated      
          Other   Non-  
  Common Preferred Retained Contributed Comprehensive   controlling Total
(in thousands of Canadian dollars) Shares Shares Earnings Surplus Income (Loss) Total interest equity
                 
Balance, November 30, 2016 $   19,051 $   2,218 $   7,543 $   8,381   $   443   $   37,636   $   443   $   38,079  
Net earnings     -      -      1,078     -        -        1,078       (34 )     1,044  
Stock-based compensation     -      -      -      99       -        99       -        99  
Common shares issued on exercise of                                          
share options and PSU's     204     -      -      (158 )     -        46       -        46  
Foreign currency translation adjustments     -      -      -      -        (1,583 )     (1,583 )     (28 )     (1,611 )
Net unrealized gain (loss) on derivative financial                                          
instruments designated as cash flow hedges net of tax impact     -      -      -      -        1,379       1,379       -        1,379  
Contribution from non-controlling interest     -      -      -      -        -        -        824       824  
Balance, September 01, 2017 $   19,255 $   2,218 $   8,621 $   8,322   $   239   $   38,655   $   1,205   $   39,860  
                                           


FIRAN TECHNOLOGY GROUP CORPORATION            
Interim Condensed Consolidated Statements of Cash Flows          
             
     Three months ended     Nine months ended 
(Unaudited)
(in thousands of Canadian dollars)
  August 31,
2018
  September 01,
2017
  August 31,
2018
  September 01,
2017
Net inflow (outflow) of cash related to the following:            
Operating activities            
Net earnings   $   643     $   138     $   1,628     $   1,044  
Items not affecting cash:            
Non-controlling interest share of net loss (earnings)       4         16         21         34  
Stock-based compensation       74         75         222         99  
(Gain) on disposal of plant and equipment       (2 )       (3 )       (2 )       (21 )
Effect of exchange rates on US dollar debt       69         (547 )       139         (482 )
Depreciation of plant and equipment       823         717         2,366         2,174  
Amortization of intangible assets       266         273         783         840  
Amortization of deferred financing costs       3         3         9         9  
Deferred income tax expense       488         1,370         2,060         2,481  
Investment tax credits (recovery) expense       (205 )       (166 )       (568 )       (495 )
Decrease in net unrealized gain on derivative                                
financial instruments designated as cash flow                                
hedges       (360 )       1,217         (624 )       1,016  
Net change in non-cash operating working capital       (837 )       (817 )       (859 )       (417 )
        966         2,276         5,175         6,282  
Investing activities            
Additions to plant and equipment       (481 )       (1,419 )       (1,687 )       (4,906 )
Recovery (additions) of deferred development costs, other       5         (1 )       226         115  
Proceeds from disposal of plant and equipment       3         -          3         18  
        (473 )       (1,420 )       (1,458 )       (4,773 )
Net cash flow from operating and investing activities       493         856         3,717         1,509  
Financing activities            
(Decrease) in bank indebtedness       (1,278 )       (1,177 )       (3,833 )       (1,408 )
Proceeds from long-term bank debt       -          -          1,289         -   
Repayments of long-term bank debt       (501 )       (377 )       (1,428 )       (1,159 )
Funding from non-controlling interest       -          -          -          824  
Proceeds from issue of Common shares       8         40         20         46  
        (1,771 )       (1,514 )       (3,952 )       (1,697 )
Effects of foreign exchange rate changes on cash flow       (38 )       (539 )       (36 )       (525 )
Net (decrease) in cash flow       (1,316 )       (1,197 )       (271 )       (713 )
Cash, beginning of the period       3,797         3,636         2,752         3,152  
Cash, end of period   $   2,481     $   2,439     $   2,481     $   2,439  
             
Disclosure of cash payments            
Payment for interest   $   125     $   111     $   425     $   370  
Payments for income taxes   $   1     $   1     $   14     $   5  
                                 

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