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Company continues solid revenue and earnings growth,
reports on plans and progress
OTTAWA, Aug. 8 /CNW Telbec/ - Allen-Vanguard Corporation (TSX:VRS) of
Ottawa, Canada today reported its financial results for the third quarter of
fiscal 2006 ended June 30, 2006, and updated investors on plans and progress.
All financial information is in Canadian dollars.
Revenue for the third quarter was $14.5 million and EBITDA(1) was
$1.9 million. Net earnings were $0.6 million, or $0.02 per share. In the third
quarter of fiscal 2005, revenue was $11.3 million, EBITDA was a loss of
$1.6 million and the net loss was $3.9 million or $0.14 per share.
"The pattern of continued and increasing profitability is gratifying,"
said David E. Luxton, President and CEO. "We are very pleased with our third
quarter results and the strong visibility we have on an exceptional fourth
quarter. This is before any major potential contract wins through our business
development activity with Lockheed Martin on ECM programs in the U.S., where
our products have been performing well in trials."
The Company noted that compared to the second quarter of 2006, revenue in
the third quarter increased 8%, EBITDA increased 73% and net earnings doubled.
The improved performance reflects a strong contribution from the electronic
counter measures ("ECM") business, which represented 47% of sales in the
quarter, as well as strong international Explosive Ordnance Disposal ("EOD")
sales. "We also continue to keep costs under control," said David Luxton. "The
improved results are due in part to the benefit of cost savings measures
initiated in January 2006, which have reduced annualized selling and
administration costs by approximately $6 million."
"Our ECM backlog remains strong," added David Luxton. "ECM shipments in
the third quarter would have been even higher but for the requirements of
supporting critical US trials with key technical staff. This has been a
rigorous process but evaluation of our ECM technology is now substantially
concluded and we believe it is the technology to beat. It is one of the only
solutions with an architecture flexible enough to meet current and future
requirements including compatibility with ECM technologies already in
service." The Company reported that an initial small quantity of its most
advanced ECM systems has been procured by Lockheed Martin for service in a
theatre of conflict. "A winning technology alone does not, of course,
guarantee success but based on what we know at this point we remain hopeful
that our U.S. efforts with Lockheed Martin could materialize into additional
orders placed this year, with excellent long-term prospects," concluded
David Luxton.
The Company also reported that it has revised its capital expenditure plan
with an additional $1 million expenditure to scale up ECM production capacity
in the UK to meet the rapid growth in orders. Half of this was spent in the
third quarter and the balance will be expended in the fourth quarter. When
complete this fall the Company will have re-configured and upgraded one of its
two facilities in Tewkesbury into a dedicated ECM manufacturing operation that
can support up to $100 million in annual ECM orders employing one work shift,
and up to three times that with additional shifts. The Company expects no
material additional capital expenditure to accommodate orders from Lockheed
Martin. As well, the working capital and order financing requirements of any
such orders can be met by the pre-payment provisions of the Technology License
and Supply Agreement (TLSA) with Lockheed Martin.
In its EOD product line the Company continues to experience strong demand
in international markets and is slowly making gains in the US market where it
is exploring strategies to accelerate growth. As well, the Company has
identified additional security markets for its search products as part of an
evolving longer term business development strategy.
The Company's Chemical Biological Radiological Nuclear (CBRN) group is
nearing completion of two significant projects: development of the Mobility
Denial System (MDS) for the US Marines, and the Swiss military decontamination
contract. Wind down of the MDS program accounted for a decline in
year-over-year CBRN revenue in the third quarter despite an increase in
decontamination equipment sales. The Company is actively pursing partnerships
and opportunities to expand its CBRN business and replace revenue from major
contracts that are nearing completion. In one potentially important
development the Company's CASCAD decontaminating foam technology has just been
qualified by the Canadian Department of National Defence for a next-generation
procurement program.
The Company affirmed that its financial position remains healthy, and that
it was in compliance with all bank covenants as of the end of the quarter.
Working capital at the end of the third quarter was $16.7 million. Cash and
cash equivalents, net of bank indebtedness, at the end of the third quarter
amounted to $1.3 million, a reduction of $1.3 million from the beginning of
the quarter. Operating cash flow, defined as net earnings adjusted for
non-cash items, was $1.1 million in the quarter, but this was more than offset
by capital investments made in the quarter to expand ECM production facilities
and long-term debt repayments and working capital changes. The Company
anticipates substantial positive operating cash flow in the fourth quarter on
the strength of orders scheduled for delivery, although the net impact on cash
position will be reduced somewhat by continued capital investment in ECM
capacity expansion.
Allen-Vanguard and its board continue to evolve the Company's strategic
vision including executable long term plans for sustainable growth of each of
its three product groups - ECM, EOD and CBRN.
Financial highlights for the third quarter ("Q3") and nine months ("YTD")
ended June 30, 2006:
- Revenue was $14.5 million in Q3 2006 and $36.8 million in YTD 2006,
compared to $11.3 million in Q3 2005 and $42.3 million in YTD 2005. The
contract for equipping and training the Iraqi police force (the "Iraq
Contract") accounted for revenue of $7.9 million in YTD 2005, all of
which was generated prior to Q3 2005.
- Revenue of $6.8 million from ECM products represented 47% of Q3 2006
revenue, compared to only 9% in Q3 2005. Revenue of $6.5 million from
EOD products was down 22% year over year in Q3 2006, and down 30% in
YTD 2006 excluding the Iraq Contract in the prior year period. The
majority of the year to date shortfall is attributable to weak North
American sales in the first half of FY 2006. Revenue of $1.2 million
from CBRN products was down 36% in Q3 2006, with higher revenues from
decontamination products being more than offset by a $1.6 million
decline in revenue generated on the Mobility Denial System development
contract, which is winding down.
- Gross profit in Q3 of $6.1 million includes a charge of $0.5 million
which was recorded to eliminate the gross profit up to the net
realizable value of inventory sold from the Iraq Inventory which was
accepted in settlement of the receivable balance outstanding. Excluding
this charge, the underlying gross margin was 45% in Q3 2006. Reported
gross margin which includes this adjustment was 42% of revenue in
Q3 2006 and 41% in YTD 2006, compared to 44% in Q3 2005 and 43% in YTD
2005.
- Selling and administration expenses were $3.7 million in Q3 2006 and
$11.5 million in YTD 2006, compared to $5.8 million in Q3 2005 and
$15.3 million in YTD 2005.
- Earnings before interest, taxes, amortization, stock-based
compensation, foreign exchange, integration costs and goodwill
impairment ("EBITDA") were $1.9 million in Q3 2006 and $1.4 million in
YTD 2006. These figures compared to an EBITDA loss of $1.6 million in
Q3 2005 and EBITDA of $1.5 million in YTD 2005.
- Net earnings for Q3 2006 were $0.6 million or $0.02 per share, compared
to a loss of $3.9 million or a loss of $0.14 per share in Q3 2005. Net
loss for YTD 2006 was $1.7 million or a loss of $0.04 per share,
compared to a net loss of $5.3 million or a loss of $0.20 per share in
YTD 2005.
- Allen-Vanguard's cash and cash equivalents, net of bank indebtedness,
at the end of Q3 2006 amounted to $1.3 million, a reduction of
$1.4 million from the beginning of the quarter. Capital expenditures of
$1.1 million in Q3 2006 more than offset operating cash flow, as the
Company initiated improvements to its Tewkesbury facility to increase
ECM production capacity in response to strong demand for this product
group. Working capital totaled $16.7 million at the end of Q3 2006, a
reduction of $0.7 million from the beginning of the quarter.
- Net Borrowings, defined as bank indebtedness, net of cash, plus long
term debt, totaled $7.4 million at the end of Q3 2006 with a ratio of
debt to debt plus equity of 0.16:1, compared to Net Borrowings of
$6.1 million and a ratio of debt to debt plus equity of 0.14:1 at FY
2005 year-end.
Financial Statements and the Management Discussion and Analysis for the
third quarter ended June 30, 2006 will be filed on www.sedar.com on
August 8th, 2006.
(1) Earnings before interest, taxes, amortization, stock-based
compensation, foreign exchange and integration costs.
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About Allen-Vanguard
Allen-Vanguard Corporation and its subsidiaries worldwide operate under
the brand "Allen-Vanguard". The Company develops and markets technologies,
tools and training for defeating and minimizing the effects of hazardous
devices and materials, whether Chemical, Biological, Radiological, Nuclear or
Explosive (CBRNE). The Company's equipment is in service with leading security
and military forces 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, vehicle barrier
systems, and personal protective wear for use in dealing with bio-chemical
agents. Allen-Vanguard is the sole, worldwide licensee and/or developer of
patented technologies such as the Universal Containment System and CASCAD Foam
for blast mitigation and decontamination of bio-chemical warfare agents. Head
office operations are located in Ottawa, Ontario, Canada, with manufacturing
operations in Stoney Creek, Ontario; Tewkesbury, U.K.; and Cork, Ireland, and
sales offices in Canada, the U.S., the U.K. and Asia. The Company's shares are
listed on The Toronto Stock Exchange (TSX: VRS). The web site is
www.allen-vanguard.com.
This press release may contain forward-looking statements relating to,
among other things, the Company's expectations concerning future product
demand and growth opportunities and customer acceptance of Company's products.
These forward-looking statements are neither promises nor guarantees, but
involve risks and uncertainties that may cause actual results to differ
materially from those in the forward-looking statements. The Company disclaims
any obligation to publicly update or revise any such statements. The Toronto
Stock Exchange has neither approved nor disapproved the contents of this press
release.
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our
website at www.allen-vanguard.com.
%SEDAR: 00018026E
