Three month period ended September 30 | Nine month period ended September 30 | |||||
Expressed in thousands of Canadian dollars, except per share amounts | 2016 | 2015 | Change | 2016 | 2015 | Change |
Revenues | 238,042 | 236,027 | 0.8% | 756,771 | 698,899 | 8.3% |
Gross Profit | 38,863 | 39,855 | (2.5)% | 133,334 | 119,545 | 11.5% |
Net Income | 18,831 | 18,533 | 1.6% | 64,580 | 53,952 | 19.7% |
Net Income per Share | 0.32 | 0.32 | 0% | 1.11 | 0.93 | 19.4% |
EBITDA | 38,393 | 37,763 | 1.7% | 128,961 | 108,636 | 18.4% |
EBITDA per Share | 0.66 | 0.65 | 1.5% | 2.22 | 1.87 | 18.7% |
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.
-
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, 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 UpdateOn October 12, 2016, the Corporation announced that it showcased, at the Helitech 2016 helicopter show in Amsterdam, an expanded product capability as offered by Euravia Engineering and Supply Co. LTD, a Magellan Aerospace company. Euravia is now providing total engine support for the Rolls-Royce 250 engine and growing its operation through its new expansion facility, Euravia North America, located in Phoenix, Arizona.
On October 13, 2016, Magellan and the Boeing Company announced the signing of new long term contracts for the supply of complex titanium machined components for the 777X program and the signing of an extension to the existing 787 Dreamliner program statement of work. The components are to be manufactured at Magellan's Kitchener, ON and New York, NY facilities.
On October 27, 2016, Magellan announced that it will be producing F-35 Lightning II horizontal tail assemblies under an agreement with BAE Systems. The agreement is the continuation of annual contract awards made to Magellan by BAE Systems for F-35 assemblies, valued at more than CDN $70 million over a two year period.
For additional information, please refer to the "Management's Discussion and Analysis" section of the Corporation's 2015 Annual Report available on www.sedar.com.
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Results of Operations
A discussion of Magellan's operating results for third quarter ended September 30, 2016
The Corporation operates substantially all of its activities in one reportable segment, Aerospace, which includes 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 was not material in the current quarter and, at present, it is not expected to be material in future periods.
The Corporation reported revenue of $238.0 million in the third quarter of 2016 as compared to $236.2 million in the third quarter of 2015. Gross profit and net income for the third quarter of 2016 were $38.9 million and $18.8 million, respectively, decreased from the gross profit of $39.9 million and increased from the net income of $18.5 million for the third quarter of 2015.
Consolidated RevenueThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
Change
2016
2015
Change
Canada
74,827
81,114
(7.8%)
248,684
237,960
4.5%
United States
84,590
83,925
0.8%
262,123
251,357
4.3%
Europe
78,625
71,168
10.5%
245,964
209,582
17.4%
Total revenues
238,042
236,207
0.8%
756,771
698,899
8.3%
Consolidated revenues for the three months ended September 30, 3016 were $238.0 million, $1.8 million or 0.8% higher than $236.2 million recorded for the same period in 2015. Revenues in Canada decreased $6.3 million or 7.8% in the third quarter of 2016 as compared to the third quarter of 2015, primarily due to lower demand in aeroengine components, and lower revenues recorded in space and specialty products, partially offset by higher revenues related to the aerostructure products.
Revenues in the United States in the third quarter of 2016 were relatively consistent with the third quarter of 2015 when measured in Canadian dollars. On a currency neutral basis, revenues in the United States were 1.1% higher than the third quarter of 2015.
Revenues in Europe increased $7.5 million or 10.5% to $78.6 million in the third quarter of 2016 as compared to $71.2 million during the same period in 2015, primarily driven by increased production build rates and repair and overhaul services, 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 third quarter of 2016 in Europe increased by 14.2% as compared to the third quarter of 2015.
Gross ProfitThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
Change
2016
2015
Change
Gross profit
38,863
39,855
(2.5%)
133,334
119,545
11.5%
Percentage of revenues
16.3%
16.9%
17.6%
17.1%
Gross profit decreased slightly by $1.0 million to $38.9 million for the third quarter of 2016 as compared to $39.9 million for the third quarter of 2015, and gross profit as a percentage of revenues declined to 16.3% for the third quarter of 2016 as compared to 16.9% for the third quarter of 2015. Decrease in gross profit was driven by an unfavourable adjustment on one of the Corporation's construction contracts. The weakening British pound in comparison to the United States dollar and the strengthening of the United States dollar in comparison to the Canadian dollar quarter over quarter, in addition to increased operational efficiencies partially offset this one-time adjustment.
Administrative and General ExpensesThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
Change
2016
2015
Change
Administrative and general expenses
13,997
13,608
2.9%
42,779
41,326
3.5%
Percentage of revenues
5.9%
5.8%
5.7%
5.9%
Administrative and general expenses were $14.0 million for the third quarter of 2016, slightly higher than $13.6 million for the same quarter in the prior year. Administrative and general expenses as a percentage of revenues were 5.9% for the third quarter of 2016 and 5.8% in the corresponding period of 2015.
OtherThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
2016
2015
Foreign exchange gain
(1,888)
(222)
(2,737)
(150)
Business closure costs
─
─
2,208
─
Loss on disposal of property, plant and equipment
56
89
241
565
Total other
(1,832)
(133)
(288)
415
Other income of $1.8 million for the third quarter of 2016 increased significantly from $0.1 million for the third quarter of 2015, mainly due to the foreign exchange gain of $1.8 million recorded in the third quarter of 2016 as a result of the weakening British pound and Canadian dollar relative to the United States dollar. The movements in balances denominated in the foreign currencies and the fluctuations of the foreign exchange rates impact the net foreign exchange gain or loss recorded in a quarter.
Interest ExpenseThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
2016
2015
Interest on bank indebtedness and long-term debt
974
1,118
3,144
3,091
Accretion charge on borrowings and long-term debt
210
242
678
722
Discount on sale of accounts receivable
308
227
955
659
Total interest expense
1,492
1,587
4,777
4,472
Total interest expense of $1.5 million in the third quarter of 2016 was consistent with the third quarter of 2015. On a year over year basis, interest on bank indebtedness and long-term debt of $1.0 million decreased $0.1 million or 13.0% mainly as a result of lower principal amounts outstanding on bank indebtedness and long term debt during the third quarter of 2016 compared to the third quarter of 2015. Discount on sale of accounts receivable of $0.3 million increased slightly over the prior year due to a larger volume of receivables transferred under the securitization program for the third of quarter of 2016 as compared to the same period in the prior year.
Provision for Income TaxesThree month period
Nine month period
ended September 30
ended September 30
Expressed in thousands of dollars
2016
2015
2016
2015
Current income tax expense
4,716
1,521
12,463
5,803
Deferred income tax expense
1,659
4,739
9,023
13,577
Income tax expense
6,375
6,260
21,486
19,380
Effective tax rate
25.3%
25.2%
25.0%
26.4%
Income tax expense for the three months ended September 30, 2016 was $6.4 million, representing an effective income tax rate of 25.3% as compared to 25.2% for the same quarter of 2015. The effective tax rate is impacted by changes in corporation taxation rates in the income tax jurisdictions in which the Corporation operates. The increase in current income taxes expense during the current quarter was due to increased taxable income resulting mainly from improved business results. The decrease in deferred tax expense was due to the utilization of deferred tax assets in the third quarter of 2015 which did not recur in the third quarter of 2016.
- Selected Quarterly Financial Information
A summary view of Magellan's quarterly financial performance
2016 | 2015 | 2014 | ||||||
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 | 238.0 | 252.7 | 266.1 | 252.6 | 236.2 | 234.4 | 228.4 | 208.9 |
Income before taxes | 25.2 | 29.6 | 31.3 | 27.1 | 24.8 | 21.8 | 26.8 | 23.9 |
Net Income | 18.8 | 22.3 | 23.4 | 25.5 | 18.5 | 16.2 | 19.2 | 17.9 |
Net Income per share | ||||||||
Basic and diluted | 0.32 | 0.38 | 0.40 | 0.44 | 0.32 | 0.28 | 0.33 | 0.31 |
EBITDA1 | 38.4 | 44.7 | 45.8 | 43.1 | 37.8 | 33.5 | 37.4 | 34.7 |
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 have been increasing steadily, reaching a peak in the first quarter of 2016 and then decreasing in the second and third quarter of 2016, partially due to the foreign exchange impact driven by the movements of the United States dollar and British pound against the Canadian dollar. The average exchange rate of United States dollar relative to the Canadian dollar fluctuated between a high of 1.3748 in the first quarter of 2016 and a low of 1.1357 in the fourth quarter of 2014. The average exchange rate of British pound relative to the Canadian dollar fluctuated between a high of 2.0280 in the third quarter of 2015 and a low of 1.7126 in the third quarter of 2016.
Revenue for the third quarter of 2016 of $238.0 million was slightly higher by $1.8 million than the third quarter in 2015. Had the foreign exchange rates remained at the same level experienced in the third quarter of 2015, revenue for the third quarter of 2016 would have been higher by $3.0 million.
Magellan Aerospace Corporation published this content on 14 November 2016 and is solely responsible for the information contained herein.
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