Magellan Aerospace : Q3 2015 Earnings Release

Magellan Aerospace Corporation - March 31, 2001,

FOR IMMEDIATE RELEASE VIA THE CANADIAN CUSTOM DISCLOSURE NETWORK NEWS RELEASE MAGELLAN AEROSPACE CORPORATION ANNOUNCES FINANCIAL RESULTS

Toronto, Ontario - November 12, 2015 - Magellan Aerospace Corporation ("Magellan" or the "Corporation") released its financial results for the third quarter of 2015 and recorded its highest quarterly revenues in its history. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

Three month period ended September 30			Nine month period ended September 30
Expressed in thousands of Canadian dollars, except per share amounts	2015	2014	Change	2015	2014	Change
Revenues	236,207	202,542	16.6%	698,899	634,094	10.2%
Gross Profit	39,855	31,651	25.9%	119,545	95,624	25.0%
Net Income	18,533	13,032	42.2%	53,952	38,717	39.4%
Net Income per Share	0.32	0.22	45.5%	0.93	0.67	38.8%
EBITDA	37,763	28,277	33.5%	108,636	85,598	26.9%
EBITDA per Share	0.65	0.49	32.7%	1.87	1.47	27.2%

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

   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 and supplies in certain circumstances parts and equipment for power generation projects.

   
   

   The Corporation's strategy has been to focus on several core competencies within the aerospace industry. These include precision machining of a wide variety of aerospace material, composites, complex high technology magnesium and aluminum alloy castings, repair and overhaul technologies and design of structures. The Corporation is now seeking to leverage these core competencies by achieving growth in applications where these abilities are critical in meeting customer needs.

   
   

   Business Update

   
   

   During the third quarter of 2015, the Corporation reported the progress on a previously announced contract with MacDonald, Dettwiler and Associates Ltd. ("MDA"), a prime contractor for Canada's RADARSAT Constellation Mission ("RCM"). Magellan has achieved key milestones in the contract with the delivery of the structure for the first two payload modules to MDA. These major assemblies will house the electronics for the radar payload being developed by MDA. They were designed and built by Magellan Aerospace, Winnipeg, the company's centre of excellence for space systems. The Corporation has been contracted by MDA to deliver three spacecraft buses, including three payload modules, for the Canadian Space Agency's RCM mission.

   
   

   The Corporation also announced on September 15, 2015, that it had entered into an international partnership agreement with th e Student Spaceflight Experiment Program ("SSEP"). This is a US-based program launched by the National Center for Earth and Space Science Education that gives students the ability to design and propose microgravity experiments to fly in low Earth orbit on the International Space Station. As an international partner, Magellan increases the opportunity for more communities to participate in SSEP and sees this funding as an investment in the youth of Canada.

   
   

   On October 5, 2015, Magellan announced that it had been awarded a follow on contract to provide nose and main landing gear assemblies to Messier-Bugatti Dowty for major commercial aircraft customers. These complex machined components are manufactured in Magellan Aerospace, New York and Magellan Aerospace, Kitchener and are expected to generate USD $80.0 million in revenues for the period of 2017 through 2021.

   
   

   For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2014 Annual Report available on www.sedar.com.

   
   

2. Results of Operations

   A discussion of Magellan's operating results for the third quarter ended September 30, 2015

   
   

   The Corporation operates substantially all of its activities in one reportable segment, Aerospace, which include the design, development, manufacture, repair and overhaul and sale of systems and components for defence and civil aviation. The Corporation continues to provide services to the Power Generation segment; however, the Corporation has removed the disclosure of this segment as the activity in relation to these services were not material in the three and nine month periods ended September 30, 2015 and, at present, they are not expected to be material in future periods.

   
   

   Increased revenues were reported by the Corporation in the third quarter of 2015 of $236.2 million when compared to the third quarter of 2014 of $202.5 million. Gross profit and net income for the third quarter of 2015 were $39.9 million and $18.5 million, respectively, an increase from the third quarter of 2014 gross profit of $31.7 million and net income of $13.0 million.

   
   

   Consolidated Revenue

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	Change	2015	2014	Change
   Canada	81,114	73,794	9.9%	237,960	243,596	(0.02)%
   United States	83,925	67,589	24.2%	251,357	203,385	23.6%
   Europe	71,168	61,159	16.4%	209,582	187,113	12.0%
   Total revenues	236,207	202,542	16.6%	698,899	634,094	10.2%

   
   

   Consolidated revenues for the third quarter of 2015 of $236.2 million were 16.6% higher than revenues of $202.5 million in the third quarter of 2014. Revenues in Canada in the third quarter of 2015 increased 9.9% from the same period in 2014 as the Corporation benefited from the weakening of the Canadian dollar against the US dollar during the quarter. On a constant currency basis, Canadian revenues in the current quarter remained consistent with those reported in the third quarter of 2014. Decreased revenues earned on proprietary products in the current quarter were offset by higher volumes on various defence and commercial platforms. Revenues increased by 24.2% in the United States in the third quarter of 2015 in comparison to the third quarter of 2014 primarily as a result of increased production rates on a number of the Corporation's commercial aircraft programs and the appreciation of the United States dollar in comparison to the Canadian dollar. On a constant currency basis, revenues in the United States increased by 20.8% in the third quarter of 2015 over the same period in 2014. European revenues in the third quarter of 2015 increased 16.4% over revenues in the same period in 2014. The business acquisition of Euravia Engineering & Supply Co. ("Euravia") in the second quarter of 2015 and the strengthening of the British pound in comparison to the Canadian dollar were the primary contributors to the increased revenues in Europe in the third quarter of 2015 when compared to the same period in 2014. On a constant currency basis, revenues in the third quarter of 2015 in Europe increased by 12.2% over the same period in 2014.

   
   

   Gross Profit

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	Change	2015	2014	Change
   Gross profit	39,855	31,651	25.9%	119,545	95,624	25.0%
   Percentage of revenues	16.9%	15.6%	17.1%	15.1%

   
   

   Gross profit of $39.9 million (16.9% of revenues) was reported for the third quarter of 2015 compared to $31.7 million (15.6% of revenues) during the same period in 2014. The strengthening year over year of the United States dollar and British pound against the Canadian dollar increased gross profit in the third quarter of 2015 over the same period in 2014. Efficiency gains from increased volumes and a favourable mix of revenues across the Corporation's geographic locations also contributed to the increase quarter over quarter. During the current quarter, gross margin was negatively impacted by additional amortization expense of $712 recorded in relation to intangible assets recognized as a result of the business acquisition of Euravia.

   
   

   Administrative and General Expenses

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	Change	2015	2014	Change
   Administrative and general expenses	13,608	12,608	7.9%	41,326	35,880	15.2%
   Percentage of revenues	5.8%	6.2%	5.9%	5.7%

   
   

   Administrative and general expenses were $13.6 million (5.8% of revenues) in the third quarter of 2015 compared to $12.6 million (6.2% of revenues) in the third quarter of 2014. Administrative and general expenses increased during the current quarter relative to the same quarter of the prior year largely as a result of the effect on translation of the strengthening United States dollar and British pound exchange rates against the Canadian dollar and the recognition of additional expenses as a result of the business acquisition of Euravia. The increase quarter over quarter was partially offset by a reduction in administrative expenses in the third quarter of 2015 over the same period in 2014, as the prior year included a one-time charge of $0.8 million for a bad debt provision.

   
   

   Other

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	2015	2014
   Foreign exchange gain	(222)	(397)	(150)	(83)
   Loss on disposal of property, plant and equipment	89	39	565	803
   Total other	(133)	(358)	415	720

   
   

   Other income of $0.1 million in the third quarter of 2015 consisted of realized and unrealized foreign exchange gains, partially offset by losses recorded on the disposal of property, plant and equipment.

   
   

   Interest Expense

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	2015	2014
   Interest on bank indebtedness and long-term debt	1,118	1,273	3,091	3,704
   Accretion charge on borrowings and long-term debt	242	203	722	1,563
   Discount on sale of accounts receivable	227	183	659	558
   Total interest expense	1,587	1,659	4,472	5,825

   
   

   Interest expense of $1.6 million in the third quarter of 2015 was slightly lower than the third quarter of 2014 amount of $1.7 million. Interest on bank indebtedness and long-term debt decreased quarter over quarter as the Corporation did not incur guarantee fees on the operating credit facility during the third quarter of 2015.

   
   

   Provision for Income Taxes

   Three month period		Nine month period
   ended September 30		ended September 30
   Expressed in thousands of dollars	2015	2014	2015	2014
   Current income tax expense	1,521	1,355	5,803	3,593
   Deferred income tax expense	4,739	3,355	13,577	10,889
   Income tax expense	6,260	4,710	19,380	14,482
   Effective tax rate	25.2%	26.6%	26.4%	27.2%

   
   

   The Corporation recorded an income tax expense of $6.3 million in the third quarter of 2015 as compared to an income tax expense of $4.7 million in the third quarter of 2014. The change in effective tax rates quarter over quarter is a result of a changing mix of income across the different jurisdictions in which the Corporation operates. The increase in deferred income tax expense in the third quarter of 2015 consisted primarily of changes in temporary differences in various jurisdictions.

   
   

3. Selected Quarterly Financial Information

A summary view of Magellan's quarterly financial performance

2015	2014	2013
Expressed in millions of dollars, except per share amounts	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31
Revenues	236.2	234.4	228.3	208.9	202.5	221.0	210.5	195.9
Income before taxes	24.8	21.8	26.8	23.9	17.7	18.8	16.7	21.0
Net Income	18.5	16.2	19.2	17.9	13.0	13.6	12.1	16.8
Net Income per share
Basic and diluted	0.32	0.28	0.33	0.31	0.22	0.23	0.21	0.29
EBITDA	37.8	33.5	37.4	34.7	28.3	30.2	27.1	31.0

The Corporation reported its highest quarterly revenues in its history in the third quarter of 2015. Revenues and net income reported in the quarterly information were impacted positively by the fluctuations in the Canadian dollar exchange rate in comparison to the United States dollar and British pound. The United States dollar/Canadian dollar exchange rate in the third quarter of 2015 fluctuated reaching a low of 1.2425 and a high of 1.3066. During the third quarter of 2015, the British pound relative to the Canadian dollar fluctuated reaching a low of 1.9540 and a high of 2.0888. Had the foreign exchange rates remained at levels experienced in the third quarter of 2014, reported revenues in the third quarter of 2015 would have been lower by $29.4 million.