OTTAWA, Nov. 13 /CNW Telbec/ - Allen-Vanguard Corporation ("Allen-Vanguard" or the "Company") (TSX:VRS) today provided a general update, including its revenue for the fourth quarter of fiscal 2008, an update to the business and financial drivers and opportunities for fiscal 2009 which commenced October 1, 2008, as well as further commentary on the progress of its financial discussions. All amounts are in Canadian dollars unless otherwise noted.
Recent Performance
The Company recorded a pronounced upturn in the finish to its fiscal year ended September 30, 2008 after a very disappointing third quarter. Revenue for the fourth quarter grew by roughly 50% over the third quarter to approximately $45 million, which resulted in estimated revenue for fiscal 2008 in the range of $300-$310 million, with all figures subject to final audit. Allen-Vanguard noted that its year-end financial report will show the previously announced restructuring charge for severance and other costs of downsizing its global workforce and rationalizing manufacturing facilities, and will also show a large write-down of goodwill and other intangible assets.
The Company also reported a very strong start to its new fiscal year which began October 1, 2008, with a sharp increase in its services business in particular, resulting in order backlog as of October 31st of approximately $120 million. The pace of orders six weeks into the new fiscal year represented an annualized revenue rate of $325 million, which is in line with the Company's expectations for fiscal 2009.
Business and Financial Drivers for Fiscal 2009
The Company has just completed an exacting analysis and forecast for F2009, against a macro environment where improvised explosive devices ("IEDs") are projected to remain a persistent global threat, per world-wide military doctrine and per U.S. Homeland Security doctrine. Allen-Vanguard's suite of products and services are core to the world-wide counter-IED mission.
The revenue expectations for fiscal 2009 represent an increase of approximately 5% over fiscal 2008, led by a 50%+ increase in service revenues. More than 60% of forecast 2009 revenue is estimated to come from the combined Systems and Services and the Personal Protection Systems business segments. Systems and Services comprises counter-IED training programs as the Company enlarges its incumbency in key, long-term counter-IED training programs for U.S. and NATO Special Forces, as well as additional revenue streams from its proprietary global data base of IED incidents. Personal Protection Systems comprises established products such as bomb suits, bomb tools and robots and new proprietary products including micro climate systems, blast protection seats and personal armor. Following the disappointing performance of sales of electronic counter measures ("ECM") equipment in fiscal 2008 due to order delays, the fiscal 2009 revenue expectations for the Electronic Systems business unit have been limited to high-visibility contracts already in backlog and high probability opportunities already well advanced in the sales process. The Electronic Systems business is concentrated in two major U.S. military programs and thus carries the most exposure to any change in spending priorities, in contrast to the Systems and Services segment and in particular the Personal Protection Systems segment with its highly diversified product and customer base.
The Company noted that revenue by quarter is expected to be more consistent compared to fiscal 2008, when 75% of revenues were recorded in the first half of the year. Quarterly revenue is expected to expand as the year progresses. Predictability of revenue is high due to the program nature of the service revenue component, as well as the strong backlog of product revenue.
Mr. David Luxton, President and CEO of Allen-Vanguard said, "After disappointing our stakeholders in the second half of last year, we have been particularly rigorous in our forecasts for F2009, ensuring that all of our product line revenue forecasts are supported by order backlog, pending orders or through pipelines of advanced sales opportunities. The result is a forecast that is driven by our own sales and technical efforts, and is less susceptible to external factors and program delays. In addition, we continue to increase market reach through expanded partnerships, alliances and teaming agreements with prime contractors and system integrators. We have recently signed a teaming agreement with a global electronics and communications firm for an ECM opportunity with an expected potential value to Allen-Vanguard of more than $100 million over two years. We are also in active discussions with other global players to take several of our product lines into more markets and programs. At this juncture we see limited downside risk, attributable mainly to timing of ECM orders as we and others in our industry await clarification of defense spending priorities following the U.S. presidential election. As against that, we see upside potential from our new products, in particular Micro Climate Systems, vehicle blast seats and personal counter-IED armor, as well as opportunities to improve our product margins."
The Company anticipates that its overall gross margin will be approximately 40%, which will be an average of the high margins on proprietary personal protection products where the company has global market shares in excess of 50% and the lower margins on services and systems. General and administrative expenses have been reduced to an estimated $10 million per quarter, or $40 million on an annualized basis, following the restructuring announced September 25, which included a 15% reduction in headcount as well as consolidation of manufacturing facilities. Research and development expense is forecast at $14 million on a net basis, slightly below the level of F2008 due to financial prudence, but with continued emphasis on defending the Company's technology leadership position, as well as new product development.
With these financial metrics, the Company anticipates strong levels of operating cash flow with free cash flow available for debt reduction and a steady reduction in the ratio of debt/cash flow throughout the year.
Update on Financial Discussions
After an initial rapid pay-down of the debt incurred in the acquisition of Med-Eng Systems in September 2007, the Company has been unable to make quarterly debt repayments since September 30, 2008 due largely to significant order delays by the US DoD for ECM equipment.
As at August 31st, 2008, the Company had debt outstanding of $188 million on its $200 million term loan facility. The Company has obtained accommodations from its lending syndicate to November 28, 2008, which defers compliance with certain financial covenants, including the deferral of the $10 million quarterly principal repayment which was due September 30, 2008. The accommodation permits the parties to continue a constructive dialogue regarding revisions to the existing credit terms. The Company is currently meeting its operating cash requirements with cash flow generated from operations.
Allen-Vanguard is also in discussions with potential investors to provide adequate working capital and to explore recapitalization alternatives. The Company and its board of directors, advised by its investment bankers, continue to explore potential investments and strategic transactions, some of which entail new capital and financial de-leveraging.
"We recognize that all our stakeholders are anxious to know the outcome of these deliberations as soon as possible, especially given the severely deteriorated condition of financial and credit markets," concluded David Luxton. "In the meantime, we are continuing our practice of updating shareholders on highlights of our progress and our business plan."
Forward looking statements
This press release may contain forward-looking statements, which reflect Allen-Vanguard's current expectations regarding future events, its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "plans," "believes," "estimates" or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future acquisitions or dispositions, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company and economic factors. Forward-looking statements are not promises or guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made about the Company. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decision and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware that the Company disclaims any obligation to publicly update or revise any such forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Discussion and Analysis to be released by the Company or except as required by law.
About Allen-Vanguard
Allen-Vanguard Corporation supports the mission of military and homeland security forces around the world with leading proprietary solutions for protection and counter-measures against hazardous devices of all kinds, whether chemical, biological, radiological or explosive (CBRNE), including improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs). Allen-Vanguard equipment is in service in more than 120 countries. Products include Electronic Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"), remote intervention robots for hazardous applications, and personal protective wear for use in dealing with explosive and bio-chemical agents. Allen-Vanguard is the developer and/or sole, worldwide licensee of proprietary technologies such as the Med-Eng bomb suit, the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal Containment System and CASCAD Foam system for blast mitigation and decontamination of bio-chemical warfare agents. Professional services encompass counter-IED intelligence, training and advisory services, including the Triton(TM) Report on terrorist incidents around the world. The Company operates globally through its wholly-owned subsidiaries under the names "Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office operations are located in Ottawa, Ontario, Canada, with manufacturing operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York; Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia, plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our website at www.allenvanguard.com.
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