Magellan Aerospace : Q1-17 Earnings Release

FOR IMMEDIATE RELEASE VIA THE CANADIAN CUSTOM DISCLOSURE NETWORK NEWS RELEASE MAGELLAN AEROSPACE CORPORATION ANNOUNCES FINANCIAL RESULTS Toronto, Ontario - May 4, 2017 - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the first quarter of 2017. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

Three month period ended March 31
Expressed in thousands of Canadian dollars, except per share amounts	2017	2016	Change
Revenues	247,210	266,058	(7.1)%
Gross Profit	43,208	48,525	(11.0)%
Net Income	39,413	23,428	68.2%
Net Income per Share	0.68	0.40	70.0%
EBITDA	62,299	45,826	35.9%
EBITDA per Share	1.07	0.79	35.4%

This news release contains certain forward-looking statements that reflect the current views and/or expectations of the Corporation with respect to its performance, business and future events. Such statements are subject to a number of risks, uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied. The Corporation assumes no future obligation to update these forward-looking statements except as required by law.

This news release presents certain non-IFRS financial measures to assist readers in understanding the Corporation's performance. Non-IFRS financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP"). Throughout this news release, reference is made to EBITDA (defined as net income before interest, income taxes, depreciation and amortization), which the Corporation considers to be an indicative measure of operating performance and a metric to evaluate profitability. EBITDA is not a generally accepted earnings measure and should not be considered as an alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized method of calculating this measure, the Corporation's EBITDA may not be directly comparable with similarly titled measures used by other companies.

1. Overview

   A summary of Magellan's business and significant updates

   Magellan is a diversified supplier of components to the aerospace industry and in certain circumstances for power generation projects. Through its wholly owned subsidiaries, Magellan designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for defence and space markets, and complementary specialty products. The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services.

   During 2016 and the first quarter of 2017 the Corporation has been focusing on reorganization of the Business Development Organization. This completed reorganization provides the Corporation with capable resources leading pro-active sales capture strategies for Magellan's key commodity groups: Aerostructures, Aeroengine, Castings, Maintenance, Repair and Overhaul ("R&O"), and Proprietary Products. The rollout of Magellan's sales strategy has been aligned with its customers' needs and is fully integrated with its site operations. Recent program awards for contract extensions and new work announcements are solid indicators that this realigned business focus is helping to support Magellan's vision of continued profitable growth. As in the past year Magellan will continue to rely on the Magellan Operating System ("MOS™") to drive continuous improvements in cash generation and profitability.

   Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.

   Business Update

   On March 8, 2017, Magellan announced a contract extension with Airbus to supply A350 XWB Crown Module assemblies. The contract extension has an approximate value of CDN $140 million. In the future the Corporation intends to satisfy a portion of this contract with parts and assemblies produced in Magellan facilities located in India and Poland.

   On April 3, 2017, Magellan announced the sale of the land and building of its Mississauga facility ("Mississauga Property") effective March 31, 2017. The sale generated net cash proceeds of approximately CDN $32.7 million. The Corporation intends to lease a new facility that will be constructed on the existing site by the new buyer.

   For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2016 Annual Report available on www.sedar.com.

2. Results of Operations

   A discussion of Magellan's operating results for first quarter ended March 31, 2017

   The Corporation reported revenue of $247.2 million in the first quarter of 2017 as compared to $266.1 million in the first quarter of 2016. Gross profit and net income for the first quarter of 2017 were $43.2 million and $38.7 million, respectively, in comparison to gross profit of $48.5 million and net income of $23.4 million for the first quarter of 2016.

   Consolidated Revenue

   Overall, the Corporation's consolidated revenues decreased by 7.1% when compared to the first quarter of 2016.

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016	Change
   Canada	75,020	92,342	(18.8%)
   United States	80,025	88,357	(9.4%)
   Europe	92,165	85,359	8.0%
   Total revenues	247,210	266,058	(7.1%)

   Consolidated revenues for the three month period ended March 31, 2017 were $247.2 million, $18.9 million or 7.1% lower than $266.1 million recorded for the same period in 2016. Revenues in Canada decreased 18.8% in the first quarter of 2017 compared to the first quarter of 2016, primarily due to lower production volume and timing of aftermarket sales as well as the weakening of the United States dollar relative to the Canadian dollar. On a currency neutral basis, Canadian revenues in the first quarter of 2017 decreased by 17.1% over the corresponding period of 2016.

   Revenues in United States decreased 9.4% in the first quarter of 2017 in comparison to the first quarter of 2016 when measured in Canadian dollars mainly due to volume reduction and unfavourable foreign exchange impact due to the weakening United States dollar against the Canadian dollar. On a currency neutral basis, revenues in the United States decreased by 6.2% in the first quarter of 2017 over the first quarter of 2016.

   European revenues increased $6.8 million or 8.0% to $92.2 million in the first quarter of 2017 compared to $85.4 million during the first quarter of 2016, primarily driven by increased production build rates offset by the unfavourable foreign exchange impact due to the weakening British pound relative to the Canadian dollar. On a constant currency basis, revenues in the first quarter of 2017 in Europe were up by 14.0% compared to the same period in 2016.

   Gross Profit

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016	Change
   Gross profit	43,208	48,525	(11.0%)
   Percentage of revenues	17.5%	18.2%

   Gross profit decreased $5.3 million to $43.2 million for the first quarter of 2017 compared to $48.5 million for the first quarter of 2016 and gross profit as a percentage of revenues decreased to 17.5% for the first quarter of 2017 from 18.2% recorded in the same period in 2016. Decrease in gross profit was primarily due to volume decrease and unfavourable product mix, partially offset by the favourable foreign exchange impact primarily driven by the weakening British pound in comparison to the United States dollar.

   Administrative and General Expenses

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016	Change
   Administrative and general expenses	15,087	15,199	(0.7%)
   Percentage of revenues	6.1%	5.7%

   Administrative and general expenses as a percentage of revenues were 6.1% for the first quarter of 2017, slightly higher on a percentage basis with that in the corresponding period of 2016. Administrative and general expenses were relatively flat quarter over quarter.

   Other

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016
   Foreign exchange loss	876	113
   (Gain) loss on disposal of property, plant and equipment	(26,593)	124
   Other	4,010	-
   Total other (income) expenses	(21,707)	237

   On March 31, 2017, the Corporation sold the Mississauga Property and recorded a gain of $26.6 million. In addition, the Corporation recorded $4.0 million of costs associated with the sale which was partially offset by $0.9 million foreign exchange loss recognized in the first quarter of 2017. Other expense of $0.2 million in the first quarter of 2016 consisted of foreign exchange loss and losses on the retirement and disposal of property, plant and equipment.

   Interest Expense

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016
   Interest on bank indebtedness and long-term debt	869	1,281
   Accretion charge for borrowings and long-term debt	234	207
   Discount on sale of accounts receivable	252	331
   Total interest expense	1,355	1,819

   Interest expense of $1.4 million in the first quarter of 2017 was $0.4 million lower than the first quarter of 2016 amount of $1.8 million, mainly due to lower interest on bank indebtedness and long-term debt. Lower principal amounts outstanding on bank indebtedness and long term debt during the first quarter of 2017 than the first quarter of 2016 contributed to the decrease in interest expenses quarter over quarter.

   Provision for Income Taxes

   Three month period
   ended March 31
   Expressed in thousands of dollars	2017	2016
   Expense of current income taxes	4,562	3,588
   Expense of deferred income taxes	4,498	4,254
   Total expense of income taxes	9,060	7,842
   Effective tax rate	18.7%	25.1%

   Income tax expense for the first quarter ended March 31, 2017 was $9.1 million, representing an effective income tax rate of 18.7% compared to 25.1% for the first quarter of 2016. The decrease in effective tax rate quarter over quarter was primarily due to the lower tax rate applicable to the capital gain on the sale of Mississauga Property in the current quarter. The increase in both current and deferred income taxes expense during the quarter was mainly attributed to higher taxable income in the first quarter of 2017 compared to the same quarter in the prior year.

3. Selected Quarterly Financial Information

   A summary view of Magellan's quarterly financial performance

   2017	2016	2015
   Expressed in millions of dollars, except per share amounts	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
   Revenues	247.2	247.1	238.0	252.7	266.1	252.6	236.2	234.4
   Income before taxes	48.5	31.3	25.2	29.6	31.3	27.1	24.8	21.8
   Net Income	39.4	24.0	18.8	22.3	23.4	25.5	18.5	16.2
   Net Income per share
   Basic and diluted	0.68	0.41	0.32	0.38	0.40	0.44	0.32	0.28
   EBITDA1	62.3	45.3	38.4	44.7	45.8	43.1	37.8	33.5

   1 EBITDA is not an IFRS financial measure. Please see the "Reconciliation of Net Income to EBITDA" section for more information.

   The quarterly revenues reported in the table above reached a peak of $266.1 million in the first quarter of 2016 as compared to $247.2 million in the first quarter of 2017. Revenues and net income reported in the quarterly information were impacted by the movements in the Canadian dollar relative to the United States dollar and British pound when the Corporation translates its foreign operations to Canadian dollars. Further, the movements in the United States dollar relative to British pound impact the Corporation's United States dollar exposures in its European operations. The average exchange rate of the United States dollar relative to the Canadian dollar in the first quarter of 2017 was 1.3237 versus 1.3703 in the same period of 2016. The average exchange rate of British pound relative to the Canadian dollar moved from 1.9594 in the first quarter of 2016 to 1.6414 during the current quarter. The average exchange rate of the British pound relative to the United States dollar decreased from 1.4299 in the first quarter of 2016 to 1.2409 in the current quarter. Had the foreign exchange rates remained at levels experienced in the first quarter of 2016, reported revenues in the first quarter of 2017 would have been higher by

   $9.4 million.

   The Corporation reported its highest net income in the first quarter of 2017 mainly driven by the recording of the gain on the sale of the Mississauga Property. As discussed above, net income reported in the quarterly information was also impacted by the foreign exchange movements. The Corporation fully utilized its net operating loss carry-forwards and certain tax credits in the United States in the second quarter of 2015, which resulted in higher income taxes thereon. The Corporation recorded business closure costs related to the closure of a small operating facility in the United States in the second quarter of 2016, and a margin adjustment related to one of its construction contracts in the third quarter of 2016, respectively. In the fourth quarter of 2015, the Corporation recognized an adjustment in corporation taxation rates in the income tax jurisdictions in which the Corporation operates. In the second quarter of 2015, the Corporation recorded a loss on translation of its foreign currency liabilities within Canada and Europe.

4. Reconciliation of Net Income to EBITDA

A description and reconciliation of certain non-IFRS measures used by management

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes EBITDA (earnings before interest expense, income taxes and depreciation and amortization) in this quarterly statement. The Corporation has provided this measure because it believes this information is used by certain investors to assess financial performance and that EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed and how the results are taxed in the various jurisdictions. Each of the components of this measure are calculated in