From Héroux-Devtek Inc
Q4 Highlights
- Sales of $166.8 million, up 5.6% from $157.9 million last year
- Operating loss of $64.4 million resulting from non-cash impairment charges of $85.8 million
- Adjusted operating income1 of $17.6 million, up from $16.2 million last year
- Adjusted EBITDA of 28.6 million, or 17.2% of sales, up from $25.9 million or 16.4% last year
- Solid cash flows related to operating activities of $26.7 million
- Funded backlog of $810 million, two thirds of which is comprised of defence orders
- All facilities remain open, and Héroux-Devtek has available liquidity of $193 million
LONGUEUIL, QC, May 21, 2020 /CNW Telbec/ – Héroux-Devtek Inc. (TSX: HRX) (“Héroux-Devtek” or the “Corporation”), a leading international manufacturer of aerospace products and the world’s third-largest landing gear manufacturer, today reported its financial results for the fourth quarter and fiscal year ended March 31, 2020. Unless otherwise indicated, all amounts are in Canadian dollars.
“I am pleased with our strong operational and financial performance this year and I want to thank our teams around the world for these great results. Today, our industry is facing a high degree of uncertainty as to the length and severity of the ongoing pandemic and its impact on the commercial aerospace industry. Given these unprecedented circumstances, we took swift action at various levels to ensure our ability to carry on safely with our production activities across all Héroux-Devtek sites. We made adjustments to our capacity to meet the new production rates in the commercial market and secured enhanced financial flexibility to support our activities for the long term,” said Martin Brassard, President and CEO of Héroux-Devtek.
“We believe we are in good position to weather the storm and eventually emerge as a well-positioned organization. First, we can count on a strong backlog of $810 million, two thirds of which is comprised of orders for the defence sector. Second, Héroux-Devtek is in a solid financial position, with $193 million of available liquidity at yearend and no significant capital repayments due on our debt until the end of 2024. Last but not least, we can count on a highly dedicated team of employees in Canada, Europe and the USA, who have already demonstrated their impressive resilience under these challenging circumstances,” concluded Mr. Brassard.
FOURTH QUARTER RESULTS
Consolidated sales grew 5.6% to $166.8 million, up from $157.9 million last year, including a 0.4% organic growth and a contribution of $8.1 million by the Corporation’s recent acquisitions. Commercial sales decreased 7.8% from $78.0 million to $72.0 million, while defence sales were up 18.7%, from $79.9 million to $94.8 million. The net impact of foreign exchange fluctuations was negligible for the quarter ended March 31, 2020.
The decrease in gross profit from 18.8% to 17.9% for the quarter compared to the same period last fiscal year was mainly driven by inefficiencies and delayed deliveries brought on by the impact of COVID-19.
We recorded an operating loss of $64.4 million, mainly due to a $79.7 million non-cash goodwill impairment charge accounted for in the fourth quarter resulting from the significant reduction in expected demand for commercial aerospace products caused by the ongoing COVID-19 pandemic. Excluding non-recurring items, operating income would have been $17.6 million, representing 10.5% percent of sales, an increase of 0.2% when compared to the fourth quarter of Fiscal 2019.
Adjusted EBITDA, which excludes non-recurring items, stood at $28.6 million, or 17.2% of sales, compared with $25.9 million, or 16.4% of sales, a year ago.
Results per share decreased from earnings of $0.34 last year to a loss of $1.98, mainly due to the non-cash impairment charges of $85.8 million recorded in Q4. Adjusted EPS grew 5.6% in the fourth quarter, from $0.36 last year to $0.38.
YEAR-END RESULTS
Consolidated sales grew 26.7% to $613.0 million, up from $483.9 million for the corresponding period last year. Commercial sales grew 20.1% in Fiscal 2020, from $236.3 million to $283.7 million, while defence sales were up 33.0% in Fiscal 2020, from $247.6 million to $329.3 million, driven mainly by acquisitions and a 12.2% organic growth.
Gross profit as a percentage of sales decreased from 17.2% to 16.8% over the twelve-month period due to inefficiencies and delayed deliveries resulting from COVID-19, as well as by higher manufacturing costs at our Longueuil facility in the first six months of the year. The net impact of foreign exchange fluctuations was negligible for the twelve-month period ended March 31, 2020.
In Fiscal 2020, the Company recorded an operating loss of $30.1 million, due to a $79.7 million non-cash goodwill impairment charge recorded in Q4 as a result of the significant reduction in expected demand for commercial aerospace products driven by the ongoing COVID-19 pandemic. Excluding non-recurring items, the operating income as a percentage of sales remained stable at 8.6% compared to the prior year.
Adjusted EBITDA, which excludes non-recurring items, stood at $96.2 million, or 15.7% of sales, compared with $74.2 million, or 15.3% of sales last year.
In Fiscal 2020, results per share decreased from earnings of $0.73 last year to a loss of $1.38 due to the same factors as for the operating income, while adjusted EPS grew to $1.00, up 19.0% from the $0.84 recorded last year.
GUIDANCE UPDATE
On April 7, 2020, management announced its decision to withdraw Fiscal 2022 sales guidance given the uncertainty related to the duration and extent of the impact of the ongoing COVID-19 pandemic on the aerospace industry and on the Corporation’s activities.
Due to the unprecedented uncertainty brought by the pandemic, management is not providing any financial guidance for Fiscal 2021.
FINANCIAL POSITION
Cash flows related to operating activities reached $26.7 million in the fourth quarter, down from $36.9 million last year. For the twelve-month period, cash flows related to operating activities amounted to $52.6 million, down from $70.0 million for the prior year. Both decreases result from investments in inventory related to organic growth in defence programs, as well as from the impact of foreign exchange fluctuations.
As at March 31, 2020, net debt stood at $246.9 million, up from $243.0 million as at April 1, 20191. The increase in long-term debt during the twelve-month period is mainly related to the Alta acquisition partially offset by the fiscal year’s cash flow generation.
In April 2020, subsequently to the end of the fourth quarter, the Corporation drew $60 million on its credit facilities, comprised of $45 million on the Revolving Facility and $15 million on the Term Loan Facility. These drawings were made as a precaution for potential liquidity requirements related to the COVID-19 pandemic.
1 Pro forma net debt as at April 1, 2019 reflects the impact of the adoption of IFRS 16 – Leases. See the Corporation’s financial statements for further details.
SUBSEQUENT EVENTS
Subsequent to the end of the fourth quarter, on May 5, 2020, the Corporation announced a restructuring initiative leading to a 10% reduction in its workforce, or approximately 225 employees, and resulted in the closure of the business unit formerly known as Alta Precision. These initiatives, which will be completed over the remainder of the fiscal year, will result in a non-recurring charge totalling up to $12.0 million before taxes accounted for in Fiscal 2021.