Source: Firan Technology Group Corporation

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

TORONTO, ONTARIO--(Marketwired - April 7, 2016) - Firan Technology Group Corporation (TSX:FTG) today announced financial results for the first quarter 2016.

  • Achieved record first quarter sales of $16.9M
  • Achieved record first quarter gross margins of 22.2%, up 22% from Q1 2015
  • Achieved record first quarter earnings before tax of $725K, up 46% from Q1 2015
  • Subsequent to quarter end, completed the acquisition of Photo Etch, via an asset purchase, to rapidly increase utilization of our Aerospace - Chatsworth facility.

"We started 2016 with very strong operating performance for FTG as a result of past investments in technology, positive impacts from past key new program wins as well as the strengthening of the US dollar," stated Brad Bourne, President and Chief Executive Officer. He added, "Growth is key to FTG to increase utilization across all facilities, particularly the new ones in Chatsworth, California and Tianjin, China. The acquisition of Photo Etch, subsequent to our quarter end, will enable us to transition work to our Aerospace Chatsworth facility more rapidly than planned. Improved utilization will drive profitability due to high contribution margins on incremental revenues."

First Quarter Results: (three months ended Feb 26, 2016 compared with three months ended Feb 27, 2015)

Q1 2016 Q1 2015
Sales $ 16,929,000 $ 16,307,000
Gross Margin 3,752,000 3,069,000
Gross Margin (%) 22.2 % 18.8 %
Operating Earnings(1): 1,220,000 554,000
• Net R&D Investment 717,000 1,013,000
• Foreign Exchange gain (55,000 ) (956,000 )
• Recovery of Investment Tax Credits (167,000 ) -
Net Earnings before Tax 725,000 497,000
• Current Tax Expense 16,000 11,000
• Deferred Tax expense (non-cash) 259,000 60,000
• Non-controlling Interests - 4,000
Net Earnings After Tax $ 450,000 $ 422,000
Earnings per share
- basic $ 0.02 $ 0.02
- diluted $ 0.02 $ 0.02
(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 first quarter of 2016 that continue to improve the Corporation and position it for the future, including:

  • Signed two new sourcing agreements with a leading US based Aerospace customer for the Circuits Toronto and Chatsworth businesses for applications in Business, Regional and Air Transport Aircraft and well as Defense and Space applications
  • Received initial production orders from two large aerospace customers at the FTG Printronics Circuits joint venture in China
  • Completed certification of Circuits Chatsworth facility for rigid flex technology under US Department of Defense MIL-PRF-31032 certification, positioning this site in the top two technology providers worldwide
  • Achieved recertification of the FTG Printronics Circuit joint venture under the AS9100 designation
  • Continued work on new development program for a control panel assembly for a helicopter program
    • Completed all risk reduction testing successfully
    • Built qualification test hardware for test and certification later in 2016

For FTG, overall sales increased by $0.6M or 3.8%, from $16.3M in Q1 2015 to $16.9M in Q1 2016.

Revenues benefited from the weakening of the Canadian dollar versus the US dollar which was down 19 cents in Q1 2016 versus Q1 last year. US dollar currency hedges in place that matured in the quarter reduced reported sales and earnings by $0.7M in Q1 2016.

The Circuits Segment sales were down $0.2M or 1.6% in Q1 2016 versus 2015. Circuits Chatsworth experienced reduced demand from a large defense oriented customer, but bookings were strong at that site in the quarter so sales are expected to recover going forward.

For the Aerospace segment, sales in Q1 2016 were $4.4M compared to $3.5M last year resulting in a 23.1% growth rate. All three sites contributed to the growth.

Gross margins in Q1 2016 were up $0.7M compared to Q1 2015, due to strong operating performance across the company, and the weaker Canadian dollar. Margins improved dramatically in Circuits Chatsworth, due to improved performance and product mix, notwithstanding the decreased sales activity. Again, the currency hedges that matured in the quarter reduced revenue, and therefore margins by $0.7M, compared to $0.4M in Q1 last year.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for Q1 2016 was $1.3M, an increase from $1.1M in Q1 2015.

The following table reconciles EBITDA(2) to the net earnings for Q1, 2016.

Q1 2016
Net earnings $ 450,000
Add:
Interest 40,000
Income taxes/ITC 275,000
Depreciation/Amortization 567,000
EBITDA $ 1,332,000
(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 earnings before tax was $0.7M in Q1 2016 versus $0.5M in Q1 2015. The improvement was due to higher gross margins, lower R&D spending, offset by significantly lower foreign exchange gains.

Net earnings after tax at FTG in Q1 2016 was $0.5M compared to $0.4M in Q1 2015. The tax expense is mostly non-cash, drawing down the Corporation's deferred income tax asset. This expense was not reported in Q1 2015 and as such, the more meaningful year-over-year comparison is the net earnings before income taxes.

The Circuits segment net earnings before corporate and interest and other costs was $1.4M in Q1 2016 compared to $1.2M in Q1 2015. The Circuits Chatsworth facility drove the improved results. The Circuits joint venture in China did not have a material impact on profitability.

The Aerospace segment net earnings before corporate and interest and other costs was ($0.2M) in Q1 2016 versus ($0.3M) in Q1 2015. The newer facilities in Chatsworth, California and Tianjin, China were a drag on earnings due to lower utilization rates at the plants as they continue to ramp up with new customers and opportunities. The acquisition announced subsequent to the quarter end provides an opportunity to transition work to the Chatsworth facility and move this site to profitability. The transition is expected to take approximately 6-9 months.

Cash flow from operations after investments in capital equipment and deferred development in Q1 2016 was ($0.6M) compared a cash flow of $0.6M in Q1 2015. Increased working capital primarily drove this change.

As at February 26, 2016, the Corporation's net working capital was $16.0M, a $1.0M increase compared to November 30, 2015.

The Corporation will host a live conference call on Thursday, April 7, 2016 at 11:30 am (Eastern) to discuss the results of Q1 2016.

Anyone wishing to participate in the call should dial 416-340-8527 or 1-800-355-4959 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 April 21, 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 8540540.

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.

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands of Canadian dollars)
February 26,
2016
November 30,
2015
ASSETS
Current assets
Cash $ 2,228 $ 3,160
Accounts receivable 12,259 12,987
Taxes receivable 300 231
Inventories 11,407 11,122
Prepaid expenses 865 979
27,059 28,479
Non-current assets
Plant and equipment, net 5,516 5,644
Deferred income tax assets 2,515 2,876
Investment tax credits receivable 6,903 6,736
Deferred development costs 462 387
Intangible assets, net 88 100
Total assets $ 42,543 $ 44,222
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 8,993 $ 10,970
Provisions 379 366
Customer deposits, net of deferred development 653 1,044
Current portion of long-term bank debt 1,071 1,058
11,096 13,438
Non-current liabilities
Long-term bank debt 4,017 4,234
Deferred tax payable 1,492 1,460
Total liabilities 16,605 19,132
Equity
Opening retained earnings (deficit) $ 1,628 $ (7,909 )
Net earnings during the period 450 9,537
Accumulated other comprehensive income (loss) 142 (233 )
2,220 1,395
Share capital
Common shares 13,090 13,075
Preferred shares 2,218 2,218
Contributed surplus 8,381 8,373
Total equity attributable to FTG's shareholders 25,909 25,061
Non-controlling interest 29 29
Total equity 25,938 25,090
Total liabilities and equity $ 42,543 $ 44,222
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings
Three months ended
(Unaudited)
(in thousands of Canadian dollars, except per share amounts)
February 26,
2016
February 27,
2015
Sales $ 16,929 $ 16,307
Cost of sales
Cost of sales 12,664 12,778
Depreciation of plant and equipment 513 460
Total cost of sales 13,177 13,238
Gross margin 3,752 3,069
Expenses
Selling, general and administrative 2,452 2,370
Research and development costs 787 1,262
Recovery of research and development costs (70 ) (249 )
Recovery of investment tax credits (167 ) -
Depreciation of plant and equipment and amortization of intangible assets 40 42
Interest expense on short-term debt - 9
Interest expense on long-term debt 40 94
Foreign exchange (gain) (55 ) (956 )
Total expenses 3,027 2,572
Earnings before income taxes 725 497
Current income tax expense 16 11
Deferred income tax expense 259 60
275 71
Net earnings $ 450 $ 426
Attributable to:
Non-controlling interest $ - $ 4
Equity holders of FTG $ 450 $ 422
Earnings per share, attributable to the equity holders of FTG
Basic $ 0.02 $ 0.02
Diluted $ 0.02 $ 0.02
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
Three months ended
(Unaudited)
(in thousands of Canadian dollars)
February 26,
2016
February 27,
2015
Net earnings $ 450 $ 426
Other comprehensive income (loss) to be reclassified to net earnings in subsequent years:
Foreign currency translation adjustments 859 866
Net unrealized (loss) on derivative financial instruments designated as cash flow hedges (645 ) (1,835 )
Tax impact 161 -
375 (969 )
Total comprehensive income (loss) $ 825 $ (543 )
Attributable to:
Equity holders of FTG $ 825 $ (549 )
Non-controlling interest $ - $ 6
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
Three months ended February 26, 2016 Attributed 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 - - 450 - - 450 - 450
Stock-based compensation - - - 12 - 12 - 12
Common shares issued on exercise of share options 15 (4 ) - 11 - 11
Foreign currency translation adjustments - - - - 859 859 - 859
Net unrealized loss on derivative financial instruments designated as cash flow hedges, net of tax impact - - - - (484 ) (484 ) - (484 )
Balance, February 26, 2016 $ 13,090 $ 2,218 $ 2,078 $ 8,381 $ 142 $ 25,909 $ 29 $ 25,938
Three months ended February 27, 2015 Attributed 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 - - 422 - - 422 4 426
Stock-based compensation - - - 14 - 14 - 14
Foreign currency translation adjustments - - - - 864 864 2 866
Net unrealized loss on derivative financial instruments designated as cash flow hedges - - - - (1,835 ) (1,835 ) - (1,835 )
Balance, February 27, 2015 $ 12,681 $ 2,218 $ (7,487 ) $ 8,425 $ (1,283 ) $ 14,554 $ 21 $ 14,575
FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
Three months ended
(Unaudited)
(in thousands of Canadian dollars)
February 26,
2016
February 27,
2015
Net inflow (outflow) of cash related to the following:
Operating activities
Net earnings $ 450 $ 426
Items not affecting cash:
Non-controlling interest share of net (earnings) - (4 )
Stock-based compensation 12 14
Effect of exchange rates on US dollar debt 78 138
Depreciation of plant and equipment 541 490
Amortization of intangible assets 12 12
Amortization of deferred financing costs 2 7
Deferred income tax expense 393 60
Investment tax credits (recovery) (167 ) -
AMIS interest accretion - 84
Amortization of government assistance - (113 )
Decrease (increase) in net unrealized loss on derivative financial instruments designated as cash flow hedges 399 (1,140 )
Net change in non-cash operating working capital (1,887 ) 863
(167 ) 837
Investing activities
Additions to plant and equipment (389 ) (242 )
Additions to deferred development costs (75 ) -
(464 ) (242 )
Net cash flow from operating and investing activities (631 ) 595
Financing activities
Repayments of long-term bank debt (282 ) (698 )
Proceeds from issue of Common shares 11 -
(271 ) (698 )
Effects of foreign exchange rate changes on cash flow (30 ) (20 )
Net (decrease) in cash flow (932 ) (123 )
Cash, beginning of the period 3,160 641
Cash, end of period $ 2,228 $ 518
Disclosure of cash payments
Payment for interest $ 40 $ 20
Payments for income taxes $ 7 $ 2

Contact Information:

Firan Technology Group Corporation
Bradley C. Bourne
President and CEO
(416) 299-4000 x 314
bradbourne@ftgcorp.com

Firan Technology Group Corporation
Joseph R. Ricci
Vice President and CFO
(416) 299-4000 x 309
joericci@ftgcorp.com
www.ftgcorp.com