Q2 Financial Highlights
- Sales of $137.1 million, compared to $145.5 million last year
- Defence sector sales increased by 11.6%, now representing 66% of consolidated sales
- Operating income of $7.1 million, compared to $10.5 million last year
- Adjusted EBITDA1 of $21.2 million, or 15.5% of sales, compared to $21.5 million, or 14.8% last year
- Cash flows related to operating activities increased to $15.4 million, compared to $12.5 million last year
Q2 Operational Highlights
- Delivery of the first main landing gears to Boeing for the F/A-18 Super Hornet aircraft
- Ramp-up of deliveries for new defence programs, including Boeing F-18, MQ-25 and SAAB Gripen E
- In October, announcement by CESA of contract with Boeing for the manufacture of actuation components
| 1 | These are non-IFRS measures. Please refer to the “Non-IFRS Measures” section at the end of this press release. |
LONGUEUIL, QC, Nov. 13, 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 second quarter ended September 30, 2020. Unless otherwise indicated, all amounts are in Canadian dollars.
“The strategy we adopted immediately at the onset of the pandemic to align our cost structure to new civil production rates while continuing to seize business development opportunities across both our sectors is yielding the targeted results, and I would like to thank our employees for all of their efforts under these challenging circumstances. I am also encouraged by the manufacturing agreement between CESA and Boeing announced in October, which is indicative of the cross-selling potential of our activities,” said Martin Brassard, President and CEO of Héroux-Devtek.
“I am pleased of the profitability and cash flow levels generated this quarter, which are a demonstration of our team’s disciplined approach to managing costs and maintaining a healthy balance sheet. Today, Héroux-Devtek derives two thirds of its revenues from the defence market, in which we enjoy a diversified profile – catering to every major aircraft category. We will continue to rigourously apply the same strategies moving forward in order to ensure robust performance until the civil market strengthens.” added Mr. Brassard.
| FINANCIAL HIGHLIGHTS | Three months ended September 30 | Six months ended September 30 | ||
| (in thousands, except per share data) | 2020 | 2019 | 2020 | 2019 |
| Sales | $ 137,063 | $ 145,516 | $ 265,398 | $ 288,943 |
| Operating income | 7,120 | 10,519 | 8,505 | 20,890 |
| Adjusted operating income1 | 9,788 | 10,519 | 17,218 | 21,505 |
| Adjusted EBITDA1 | 21,233 | 21,510 | 39,591 | 43,019 |
| Net income | 3,838 | 6,307 | 2,525 | 12,750 |
| Adjusted net income1 | 6,118 | 6,307 | 9,500 | 13,266 |
| Cash flows related to operating activities | 15,427 | 12,504 | 30,900 | 16,199 |
| Free cash flow1 | 13,375 | 7,248 | 23,607 | 5,660 |
| In dollars per share | ||||
| EPS – basic and diluted | $ 0.11 | $ 0.18 | $ 0.07 | $ 0.36 |
| Adjusted EPS1 | 0.17 | 0.18 | 0.26 | 0.37 |
| As at | September 30, 2020 | June 30, 2020 | ||
| Funded backlog2 | $ 764,000 | $ 772,000 |
| 1 | This is a non-IFRS measure. Please refer to the “Non-IFRS Measures” section at the end of this press release. |
| 2 | Represents firm orders. |
SECOND QUARTER RESULTS
Consolidated sales decreased 5.8% to $137.1 million, from $145.5 million last year. Defence sales were up 11.6%, from $80.6 million last year to $90.0 million in the second quarter, while civil sales decreased 27.5%, from $64.9 million to $47.1 million. This decrease was mainly related to lower OEM demand in the large commercial sector, where twin-aisle deliveries decreased 44% due to the ongoing pandemic.
Gross profit as a percentage of sales increased from 15.3% last year to 15.4%, as a better sales mix offset the impact of lower volume without a corresponding decrease in fixed costs such as depreciation, which represented a negative year-over-year impact of 0.5% of sales.
Operating income decreased to $7.1 million, or 5.2% of sales, from $10.5 million, or 7.2% of sales last year, reflecting restructuring charges totaling $2.7 million this quarter, with none during the same period last year. Adjusted EBITDA, which excludes non-recurring items, stood at $21.2 million, or 15.5% of sales, compared with $21.5 million, or 14.8% of sales, a year ago.
Earnings per share decreased from $0.18 last year to $0.11 this year due to the factors stated above. Adjusted EPS remained relatively stable at $0.17 compared to $0.18 last year.
The Corporation’s funded backlog was relatively stable at $764 million as at September 30, 2020, compared to $772 million as at June 30, 2020, as an increase in defence orders offset lower demand for large commercial programs.
SIX-MONTH RESULTS
Consolidated sales decreased 8.1% to $265.4 million, from $288.9 million for the corresponding period last year. Defence sales were up 7.5%, from $156.6 million last year to $168.4 million in the first six months of the year, while civil sales decreased 26.7%, from $132.4 million to $97.0 million.
Gross profit as a percentage of sales decreased to 15.7% from 16.1% last year, mainly as a result of lower volume without a corresponding decrease in fixed costs such as depreciation, which represented a year-over-year impact of 0.7% of sales. This factor was partly offset by a better sales mix.
Operating income decreased to $8.5 million, or 3.2% of sales, from $20.9 million, or 7.2% of sales last year, reflecting restructuring charges totaling $8.7 million, compared to $0.6 million last year. Adjusted EBITDA, which excludes non-recurring items, stood at $39.6 million, or 14.9% of sales, compared with $43.0 million, or 14.9% of sales last year.
EPS decreased from $0.36 last year to $0.07, reflecting the factors described above, while adjusted EPS decreased to $0.26 from the $0.37 recorded in the same period last year.
FINANCIAL POSITION
As at September 30, 2020, net debt stood at $218.8 million, down from $246.9 million as at March 31, 2020. In the second quarter, net debt decreased $13.7 million, and decreased by $28.1 million over the six-month period – mainly as a result of cash flow generation over the three- and six-month periods. The net debt to adjusted EBITDA ratio stood at 2.4x versus 2.6x six months earlier.
As at September 30, 2020, the Corporation had a strong financial position with $228.7 million of available liquidity, an increase of $35.9 million compared to March 31, 2020.
RESTRUCTURING UPDATE
The restructuring initiatives announced in May 2020 are progressing as planned, with approximately 70% of expected workforce reductions completed to date. Related restructuring charges of $8.7 million have been incurred to date this fiscal year. In October, management made the decision to also close Héroux-Devtek’s Wichita facility as a result of decreasing business volume. The business unit’s repair and overhaul activities will be consolidated in other Héroux-Devtek facilities, while manufacturing activities will be terminated. This decision will affect 37 additional employees, and the net cost of the closure will fit within the initially estimated $12.0 million of restructuring charges.