Firan Technology Group Corporation
TSX : FTG

Firan Technology Group Corporation

October 11, 2016 17:10 ET

Firan Technology Group (FTG) Announces Third Quarter 2016 Financial Results

TORONTO, ONTARIO--(Marketwired - Oct. 11, 2016) - Firan Technology Group Corporation (TSX:FTG) today announced financial results for the third quarter 2016.

  • Achieved record sales of $23.2M, up 27% from Q3 2015.
  • Closed the acquisition of the assets of Teledyne Printed Circuit Technology (PCT)
  • Completed equity raise to support above acquisition, issuing 3.45M common shares

"The third quarter of 2016 saw record sales for FTG", stated Brad Bourne, President and Chief Executive Officer. He added, "These record sales are enabling us to report strong earnings while still investing in our future. In the quarter, we closed our second acquisition of the year. In both cases, the acquisitions increase our access to key new markets and customers. Our intention is to transition the work to existing FTG facilities and rapidly drive up our utilization rates thereby maximizing future profits."

Third Quarter Results: (three months ended Aug 26, 2016 compared with three months ended Aug 28, 2015)

Q3 2016 Q3 2015
Sales $23,187,000 $18,227,000
Gross Margin 5,011,000 5,109,000
Gross Margin (%) 21.6 % 28.0 %
Operating Earnings (1): 2,307,000 2,314,000
- Net R&D Investment 748,000 1,482,000
- Bargain Purchase Gain (5,578,000 ) -
- Restructuring Expense 3,245,000 -
- Foreign Exchange loss (gain) 13,000 (874,000 )
Net Earnings before Tax 3,879,000 1,706,000
- Tax Expense 383,000 69,000
- Non-controlling Interests 11,000 1,000
Net Earnings After Tax $3,485,000 $1,636,000
Earnings per share
- basic $0.17 $0.09
- diluted $0.15 $0.08
Year-to-Date Results: (nine months ended Aug 26, 2016 compared with nine months ended Aug 28, 2015)
YTD 2016 YTD 2015
Sales $59,881,000 $53,303,000
Gross Margin 13,623,000 13,081,000
Gross Margin (%) 22.8 % 24.5 %
Operating Earnings: (1) 5,754,000 5,163,000
Net R&D Investment 2,272,000 3,601,000
Bargain Purchase Gain (7,189,000 ) -
Restructuring Expense 3,915,000 -
Foreign Exchange Loss (Gain) 318,000 (1,777,000 )
Net Earnings before tax 6,438,000 3,339,000
Income Tax 1,136,000 213,000
Non-controlling Interests 17,000 11,000
Net Earnings after tax $5,285,000 $3,115,000
Earnings per share
- basic $0.27 $0.17
- diluted $0.25 $0.15
(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 2016 that continue to improve the Corporation and position it for the future, including:

  • Began the transition of PhotoEtch customers and activity to other FTG Aerospace sites
  • Closed the acquisition of the assets of Teledyne PCT
  • Raised new equity via the issue of 3.45 million shares at $2.00 per share, less expenses
  • Announced a new contract to supply cockpit products for a US military simulator program, a PhotoEtch customer
  • FTG Aerospace Chatsworth was selected as a top performing supplier by Lockheed Martin Aeronautics
  • Entered into an agreement to license the eSurface technology as a semi additive manufacturing process for certain advanced technology printed circuit boards

For FTG, overall sales increased by $5.0M or 27% from $18.2M in Q3 2015 to $23.2M in Q3 2016. Both business segments contributed to the growth. Revenues benefited from the PhotoEtch acquisition which closed on March 18th and contributed $1.8M in incremental sales during the third quarter as well as the Teledyne PCT acquisition closed on July 8th and contributed $3.5M in the quarter. Excluding the acquisitions, revenues were down $0.3M or 2% compared to Q3 2015.

The Circuits Segment sales were up $0.8M or 5.8% in Q3 2016 versus Q3 2015. On a year-to-date basis, Circuits sales were up $1.0M or 2.6%. The Teledyne PCT acquisition revenue is approximately 20% Circuits.

For the Aerospace segment, sales in Q3 2016 were $8.5M compared to $4.3M in the same quarter last year resulting in a 96% growth rate. Included in the Q3 2016 results are $1.9M in sales from the acquisition of PhotoEtch and $2.8M from Teledyne PCT. Year-to-date Aerospace sales were up $5.5M or 43%.

Gross margins in Q3 2016 were down $0.1M compared to Q3 2015. Margins were essentially flat from the existing FTG sites before increased expenses related to lower R&D efforts are Circuits Chatsworth and lower deferred development costs at Aerospace Toronto which resulted in higher cost of sales. At the PhotoEtch site, margins were essentially zero and at Teledyne PCT they were approximately 15%.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for trailing twelve months is $9.9M.

The following table reconciles EBITDA(2) to the net earnings for Q3 2016 and trailing 12 months.


Q3 2016
Trailing 12 Months
Net earnings $3,496,000 11,724,000
Add:
Interest 77,000 877,000
Income taxes/ITC/JV 220,000 (5,296,000 )
Depreciation/Amortization 808,000 2,563,000
EBITDA $4,601,000 $9,868,000
(2) 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 2016 was $3.5M compared to a net profit of $1.6M in Q3 2015. This improvement is the gain on the purchase of Teledyne offset by the restructuring charge and by lower foreign exchange gains.

The Circuits segment net earnings before corporate and interest and other costs was $2.5M in Q3 2016 compared to $2.1M in Q3 2015.

The Aerospace net earnings before corporate and interest and other costs increased to $2.0M versus $0.0M in Q3 2015. The results benefited from the gain on the acquisition, offset by a restructuring charge for the acquisitions of both PhotoEtch and Teledyne PCT. Costs related to the development of the C919 cockpit assemblies and one new program were treated as deferred development and not expensed, but in both cases the activity in the quarter was significantly reduced due to customer requested delays on the programs.

As at Aug 26, 2016, the Corporation's net working capital was $22.1M, an increase of $7.0M over year end 2015, primarily due to the assets acquired from PhotoEtch and Teledyne PCT.

The Corporation will host a live conference call on Wednesday October 12, 2016 at 1:30 pm (EDT) to discuss the results of Q3 2016.

Anyone wishing to participate in the call should dial 416-340-2220 OR 1-866-225-2055 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 26, 2016 and will be available on the FTG website at www.ftgcorp.com. The number to call for a rebroadcast is 905-694-9451 or 1-800-408-3053, Pass Code 4501417.

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, Hudson, New Hampshire 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.

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

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Balance Sheets
(Unaudited)August 26,November 30,
(in thousands of Canadian dollars)20162015
ASSETS
Current assets
Cash$ 3,097$ 3,160
Accounts receivable18,00512,987
Taxes receivable140231
Inventories21,12211,122
Prepaid expenses1,386979
43,75028,479
Non-current assets
Plant and equipment, net8,2875,644
Deferred income tax assets1,5052,876
Investment tax credits receivable7,2356,736
Deferred development costs691387
Intangible assets, net5,181100
Total assets$ 66,649$ 44,222
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness$ 5,070$ -
Accounts payable and accrued liabilities14,37210,970
Provisions394366
Customer deposits, net of deferred development3151,044
Current portion of long-term bank debt1,5111,058
21,66213,438
Non-current liabilities
Long-term bank debt6,1974,234
Deferred tax payable1,5551,460
Total liabilities29,41419,132
Equity
Retained earnings$ 6,913$ 1,628
Accumulated other comprehensive income (loss)701(233)
7,6141,395
Share capital
Common shares18,97213,075
Preferred shares2,2182,218
Contributed surplus8,3888,373
Total equity attributable to FTG's shareholders37,19225,061
Non-controlling interest4329
Total equity37,23525,090
Total liabilities and equity$ 66,649$ 44,222
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings
Three months ended Nine months ended
(Unaudited)August 26, August 28,August 26, August 28,
(in thousands of Canadian dollars, except per share amounts)2016 20152016 2015
Sales $ 23,187 $ 18,227$ 59,881 $ 53,303
Cost of sales
Cost of sales17,567 12,62044,609 38,781
Depreciation of plant and equipment609 4981,649 1,441
Total cost of sales18,176 13,11846,258 40,222
Gross margin5,011 5,10913,623 13,081
Expenses
Selling, general and administrative2,595 2,6637,905 7,493
Research and development costs818 1,5522,482 4,023
Recovery of research and development costs(70) (70)(210) (422)
Recovery of investment tax credits(152) -(499) -
Depreciation of plant and equipment and amortization
of intangible assets184 36282 118
Interest expense on short-term debt31 751 34
Interest expense on long-term debt46 89130 273
Foreign exchange loss (gain)13 (874)318 (1,777)
Bargain purchase gain(5,578) -(7,189) -
Restructuring expenses3,245 -3,915 -
Total expenses1,132 3,4037,185 9,742
Earnings before income taxes3,879 1,7066,438 3,339
Current income tax expense15 946 33
Deferred income tax expense368 601,090 180
Total income tax expense383 691,136 213
Net earnings$ 3,496 $ 1,637$ 5,302 $ 3,126
Attributable to:
Non-controlling interest$ 11 $ 117 11
Equity holders of FTG$ 3,485 $ 1,6365,285 3,115
Earnings per share, attributable to the equity holders of FTG
Basic$ 0.17 $ 0.09$ 0.27 $ 0.17
Diluted$ 0.15 $ 0.08$ 0.25 $ 0.15
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
Three months ended Nine months ended
(Unaudited)August 26, August 28, August 26, August 28,
(in thousands of Canadian dollars)2016 2015 2016 2015
Net earnings$ 3,496 $ 1,637 $ 5,302 $ 3,126
Other comprehensive income (loss) to be reclassified to net earnings in subsequent periods:
Foreign currency translation adjustments(100)56 688 937
Net unrealized gain (loss) on derivative financial instruments designated as cash flow hedges
143

(425
)
324

(1,655
)
Tax impact(36)- (81)-
7 (369)931 (718)
Total comprehensive income$ 3,503 $ 1,268 $ 6,233 $ 2,408
Attributable to:
Equity holders of FTG$ 3,493 $ 1,267 $ 6,219 $ 2,395
Non-controlling interest$ 10 $ 1 $ 14 $ 13
FIRAN TECHNOLOGY GROUP CORPORATION
Consolidated Statements of Changes in Equity
Nine months ended August 26, 2016Attributed to the equity holders of FTG


(Unaudited)
(in thousands of Canadian dollars)


Common
Shares


Preferred
Shares

Opening
Retained
Earnings


Contributed
Surplus
Accumulated
Other
Comprehensive
Income (Loss)

Total

Non-
controlling
interest


Total
equity
Balance, November 30, 2015$ 13,075$ 2,218$ 1,628 $ 8,373 $ (233)$ 25,061 $ 29 $ 25,090
Net earnings--5,285 - - 5,285 17 5,302
Stock-based compensation--- 35 - 35 - 35
Common shares issued on exercise of share options
78

(20
)
-

58

-

58
Common shares issued5,819-- - - 5,819 - 5,819
Foreign currency translation adjustments--- - 691 691 (3)688
Net unrealized gain on derivative financial instruments designated as cash flow hedges, net of tax impact

-


-


-


-


243


243


-


243
Balance, August 26, 2016$ 18,972$ 2,218$ 6,913 $ 8,388 $ 701 $ 37,192 $ 43 $ 37,235
Nine months ended August 28, 2015Attributed to the equity holders of FTG


(Unaudited)
(in thousands of Canadian dollars)


Common
Shares


Preferred
Shares

Opening
Retained
(Deficit)


Contributed
Surplus
Accumulated
Other
Comprehensive
Income (Loss)



Total

Non-
controlling
interest


Total
equity
Balance, November 30, 2014$ 12,681$ 2,218$ (7,909)$ 8,411 $ (312)$ 15,089 $ 15 $ 15,104
Net earnings--3,115 - - 3,115 11 3,126
Stock-based compensation--- 39 - 39 - 39
Common shares issued on exercise of share options
188

-

-

(45
)
-

143

-

143
Foreign currency translation adjustments--- - 935 935 2 937
Net unrealized loss on derivative financial instruments designated as cash flow hedges
-

-

-

-

(1,655
)
(1,655
)
-

(1,655
)
Balance, August 28, 2015$ 12,869$ 2,218$ (4,794)$ 8,405 $ (1,032)$ 17,666 $ 28 $ 17,694
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
Three months ended Nine months ended
(Unaudited)August 26, August 28, August 26, August 28,
(in thousands of Canadian dollars)2016 2015 2016 2015
Net inflow (outflow) of cash related to the following:
Operating activities
Net earnings$ 3,496 $ 1,637 $ 5,302 $ 3,126
Items not affecting cash:
Non-controlling interest share of net (earnings)(11)(1)(17)(11)
Stock-based compensation11 13 35 39
Effect of exchange rates on US dollar debt(22)40 (132)172
Depreciation of plant and equipment640 522 1,734 1,523
Amortization of intangible assets154 12 198 36
Amortization of deferred financing costs3 7 8 21
Deferred income tax expense403 60 1,465 180
Investment tax credits (recovery)(152)- (499)-
AMIS interest accretion- 84 - 252
Amortization of government assistance- (113)- (339)
Decrease (increase) in net unrealized loss on derivative financial instruments designated as cash flow hedges

107


(426
)

1,126
-
-
(961
)
Net change in non-cash operating working capital(5,891)1,120 (12,897)(78)
(1,262)2,955 (3,677)3,960
Investing activities
Additions to plant and equipment(3,373)(278)(4,502)(945)
Additions to intangible assets(4,340)- (5,280)-
Additions to deferred development costs(292)(120)(303)(236)
Additions to deferred financing costs(11)- (11)-
(8,016)(398)(10,096)(1,181)
Net cash flow from operating and investing activities(9,278)2,557 (13,773)2,779
Financing activities
Increase in bank indebtedness1,550 - 5,070 -
Proceeds from long-term bank debt3,390 - 3,390 -
Repayments of long-term bank debt(300)(479)(842)(1,221)
Proceeds from issue of Common shares5,851 62 5,876 143
10,491 (417)13,494 (1,078)
Effects of foreign exchange rate changes on cash flow113 (42)216 (41)
Net increase (decrease) in cash flow1,326 2,098 (63)1,660
Cash, beginning of the period1,771 203 3,160 641
Cash, end of period$ 3,097 $ 2,301 3,097 $ 2,301
Disclosure of cash payments
Payment for interest$ 77 $ 17 $ 181 $ 57
Payments for income taxes$ - $ 1 $ 14 $ 6

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