Firan Technology Group Corporation (“FTG” or “the Corporation”) Announces Second Quarter 2020 Financial Results

TORONTO, July 08, 2020 (GLOBE NEWSWIRE) -- Firan Technology Group Corporation (TSX: FTG) today announced financial results for the second quarter 2020.

  • Achieved a book-to-bill ratio in Q2 of 0.97:1 
  • Ended Q2 2020 with over $50M in total backlog, of which $28M is due in Q3 2020
  • Generated $3.0M in cash in Q2 and ended the quarter with $6.4M in net cash on the balance sheet
  • Achieved highest gross margin percentage of 32.3%
  • Achieved net income of $2.0M in the quarter (7.6% of sales)
  • Received $0.8M in Canadian Emergency Wage Subsidy in the quarter
  • Received $3.3M ($2.4M USD) in loans from the US Paycheck Protection Program (PPP), which can be forgiven in future periods if certain conditions are met
  • Subsequent to quarter-end, FTG entered into a new 2 year, $20M USD committed credit facility on terms similar to the previous agreement

Second Quarter Results: (three months ended May 29, 2020 compared with three months ended May 31, 2019)

  Q2 2020
  Q2 2019
 
Sales$26,822,000 $32,235,000 
   
Gross Margin 8,674,000  9,717,000 
Gross Margin (%) 32.3% 30.1%
   
Operating Earnings (1):    4,313,000  5,388,000 
   
•  R&D Investment 1,583,000  1,168,000 
•  R&D Tax Credits (203,000) 10,000 
•  Foreign Exchange (Gain) Loss (464,000) 140,000 
•  Amortization of Intangibles 97,000  272,000 
   
Net Earnings before Tax 3,300,000  3,798,000 
   
•  Income Tax 1,302,000  1,348,000 
•  Non-controlling Interests (36,000) (32,000)
   
Net Earnings After Tax$2,034,000 $2,482,000 
   
Earnings per share  
- basic$0.09 $0.11 
- diluted$0.08 $0.10 
   


Year-to-Date: (six months ended May 29, 2020 compared with six months ended May 31, 2019)

  YTD 2020  YTD 2019 
Sales$51,360,000 $57,625,000 
   
Gross Margin 12,634,000  16,471,000 
Gross Margin (%) 24.6% 28.6%
   
Operating Earnings (1):    4,555,000  8,706,000 
   
•  R&D Investment 2,664,000  2,284,000 
•  R&D Tax Credits (375,000) (195,000)
•  Foreign Exchange (Gain) Loss (415,000) 296,000 
•  Amortization of Intangibles 396,000  543,000 
•  Impairment of Intangibles 1,145,000  - 
   
Net Earnings before Tax 1,140,000  5,778,000 
   
•  Income Tax 1,771,000  2,155,000 
•  Non-controlling Interests (68,000) (77,000)
   
Net (Loss) Earnings After Tax($563,000)$3,700,000 
   
(Loss) Earnings per share  
- basic($0.02)$0.16 
- diluted($0.02)$0.15 
   


(1)Operating Earnings is not a measure recognized under International Financial Reporting Standards (“IFRS”).  Management believes that this measure is important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating Operating Earnings may differ from other corporations and accordingly may not be comparable to measures used by other corporations.


Business Highlights

FTG accomplished many goals in Q2 2020 that continue to improve the Corporation and position it for the future, including:

  • Received Canadian, US and Chinese government support to offset the impact of COVID-19, in the form of grants, forgivable loans and reduced or delayed tax remittances
  • Implemented hiring freeze, wage freeze and new capital spending freeze across FTG to maintain a strong balance sheet during the uncertain times related to the COVID-19 pandemic
  • Maintained solid bookings with a 0.97:1 book-to-bill ratio with increasing backlog in the US sites focused more on defense work and decreasing backlog in Canadian and Chinese sites focused more on commercial aerospace programs
  • Bookings in Q2 increased by $1.5M compared to Q1 2020

For FTG, overall sales decreased by $5.4M or 17% from $32.2M in Q2 2019 to $26.8M in Q2 2020.  Circuits Fredericksburg contributed $2.6M in Q2 2020, compared to $0 last year.  Also benefiting Q2 2020 was a $0.06 weakening of the Canadian dollar versus Q2 last year, which positively impacted sales by approximately $0.6M, net of the impact of realized losses on FX forward contracts. Negatively impacting sales in Q2 2020 was a $3M drop in simulator related sales compared to Q2 last year.  Simulator related sales vary much more from quarter-to-quarter than other parts of FTG’s business and Q2 last year was a very strong quarter for simulator related sales.  Chatsworth sales were down over $3M due in part to lower simulator sales, extended lead time for some components, other supplier issues related to COVID-19 and COVID-19 impact on operations.  On a year-to-date basis, sales were $51.4M compared to $57.6M for the same period last year.  The drop is due to lower Aerospace sales as described below.

The Circuits Segment sales were up $0.3M, or 2% in Q2 2020 versus Q2 2019.  Included in Q2 2020 were sales of $2.6M from Circuits Fredericksburg, acquired in July, 2019.  The Toronto and Chatsworth sites had lower sales and the Joint Venture in China was flat.  Year-to-date sales in the Circuits Segment were $36.1M vs $34.5M in 2019.  Circuits Fredericksburg contributed $4.7M in 2020.  The two North American sites were down similar amounts this year and the Joint Venture was stable.

For the Aerospace Segment, sales in Q2 2020 were $7.2M compared to $13.0M in Q2 last year.  Simulator related sales were down $3M in Q2 2020, which impacted all three sites.  Simulator revenues are expected to rebound in the second half of 2020 as the backlog in simulator work at the end of Q2 2020 was strong.  The Aerospace sites were negatively impacted by extended component lead times, as a result of COVID-19 impacts on the supply chain.  Year-to-date 2020, Aerospace Segment sales were down $7.9M, of which simulator related sales were down $5M. 

Gross margins in Q2 2020 were $8.7M or 32.3% compared to $9.7M or 30.1% in Q2 2019.  The lower sales impacted the overall margin while strong cost control, the Canadian wage subsidy received and high throughput improved the margin percentage on a year-over-year basis. 

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for Q2 2020 was $5.2M compared to $5.2M in Q2 2019.  Again, the strong operating performance resulted in the 19.4% EBITDA margin.

The following table reconciles net earnings to EBITDA(2)  for the quarter and the trailing 12 months ended May 29, 2020.

 Q2 2020Trailing 12 Months
   
Net earnings to equity holders of FTG 2,034,000 1,795,000
Add:  
Interest, accretion 198,000 499,000
Income taxes 1,302,000 3,362,000
Depreciation/Amortization Stock Comp./Impairment 1,682,000 7,309,000
   
EBITDA$5,216,000$12,965,000


(2)EBITDA are not measures recognized under International Financial Reporting Standards (“IFRS”).  Management believes that these measures are important to many of the Corporation’s shareholders, creditors and other stakeholders. The Corporation’s method of calculating EBITDA may differ from other corporations and accordingly may not be comparable to measures used by other corporations.

Net profit after tax at FTG in Q2 2020 was $2.0M or $0.08 per diluted share compared to a net profit of $2.5M or $0.10 per diluted share in Q2 2019.  Net profit after tax in Q2 2020 was impacted by the lower sales, offset by strong throughput and operating results and the Canadian wage subsidy.

The Circuits Segment net earnings before corporate and interest and other costs was $3.8M in Q2 2020 compared to $3.9M in Q2 2019.  In Q2 2020, the sales were similar to Q2 2019 while the Circuits Fredericksburg site added approximately $2.2M in incremental costs in Q2 2020, offset by reduced costs on lower sales in other FTG sites.  For the year-to-date, the net earnings before corporate and interest and other costs was $4.5M compared to $6.1M in the first 6 month of 2019. 

The Aerospace net earnings before corporate and interest and other costs in the quarter was $0.6M in Q2 2020 versus $0.7M in Q2 2019. The drop is due primarily to reduced sales from the simulator related market offset by reduced cost across the business.  In the first 6 months of 2020, the net earnings before corporate and interest and other costs was ($1.4M) compared to $1.2M in the same period last year.  Reduced sales impacted earnings and Q1 2020 included $1.1M cost for impairment of intangible assets.

As at May 29, 2020, the Corporation’s net working capital was $30.0M, compared to $28.6M at year-end in 2019.  The increase is due to higher cash, higher inventories offset by lower accounts receivable.  As the existing bank facility agreement was scheduled to expire in November 2020, the outstanding bank debt of $4.6M pursuant to that facility was classified as current as of May 29, 2020. 

Net cash at the end of Q2 2020 was $6.4M compared to net cash of $2.2M at the end of 2019. 

Subsequent to quarter end, FTG Circuits Fredericksburg had a fire in the production area of the plant.  No employees were injured.  One piece of equipment was damaged but work-around production processes have been created while that equipment is repaired or replaced.  While there was smoke and water damage in significant parts of the building, production resumed within a few days, and building remediation is ongoing. 

Also subsequent to the end of Q2 2020, FTG entered into an amended and restated two-year committed credit facility with the same major financial institution, which will expire in July, 2022.  The amended credit facility is a US$20.0 million committed revolving credit facility consisting of a US$10.0 million operating credit for working capital purposes and a US$10.0 million term credit to fund capital expenditures. The key terms of this credit facility are comparable to the previous one.

The Corporation will host a live conference call on Thursday July 9, 2020 at 8:30am (Eastern) to discuss the results of Q2 2020.

Anyone wishing to participate in the call should dial 647-427-2311 or 1-866-521-4909 and identify that you are calling to participate in the FTG conference call. The Chairperson is Mr. Brad Bourne.  A replay of the call will be available until August 10, 2020 and will be available on the FTG website at www.ftgcorp.com.  The number to call for a rebroadcast is 416-621-4642 or 1-800-585-8367, Conference ID 1275227.           
                                                  

ABOUT FIRAN TECHNOLOGY GROUP CORPORATION

FTG is an aerospace and defense electronics product and subsystem supplier to customers around the globe.  FTG has two operating units:

 FTG Circuits is a manufacturer of high technology, high reliability printed circuit boards.  Our customers are leaders in the aviation, defense, and high technology industries.  FTG Circuits has operations in Toronto, Ontario, Chatsworth, California, Fredericksburg, Virginia and a joint venture in Tianjin, China.
  
 FTG Aerospace manufactures illuminated cockpit panels, keyboards and sub-assemblies for original equipment manufacturers of aerospace and defense equipment.  FTG Aerospace has operations in Toronto, Ontario, Chatsworth, California, Fort Worth, Texas and Tianjin, China.

The Corporation's shares are traded on the Toronto Stock Exchange under the symbol FTG.

FORWARD-LOOKING STATEMENTS

This news release contains certain forward-looking statements.  These forward-looking statements are related to, but not limited to, FTG’s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes.  Such statements are based on the current expectations of management of the Corporation and inherently involve numerous risks and uncertainties, known and unknown, including economic factors and the Corporation’s industry, generally.  The preceding list is not exhaustive of all possible factors.  Such forward-looking statements are not guarantees of future performance and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Corporation.  The reader is cautioned to consider these and other factors carefully when making decisions with respect to the Corporation and not place undue reliance on forward-looking statements. Other than as may be required by law, FTG disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

For further information please contact:       

Bradley C. Bourne, President and CEO                                                                      
Firan Technology Group Corporation
Tel: (416) 299-4000 x314
bradbourne@ftgcorp.com

Jamie Crichton, Vice President and CFO                                            
Firan Technology Group Corporation
Tel:(416) 299-4000 x264
jamiecrichton@ftgcorp.com

Additional information can be found at the Corporation’s website www.ftgcorp.com



FIRAN TECHNOLOGY GROUP CORPORATION  
Interim Condensed Consolidated Statements of Financial Position 
   
(Unaudited)May 29,November 30,
(in thousands of Canadian dollars) 2020 2019
ASSETS  
Current assets  
Cash$ 14,258 $7,647 
Accounts receivable 19,308  21,085 
Contract assets 317  432 
Inventories 23,284  21,990 
Prepaid expenses 1,518  1,770 
  58,685  52,924 
Non-current assets  
Plant and equipment, net 14,406  13,830 
Right-of-use assets 13,187  - 
Deferred income tax assets 724  724 
Investment tax credits receivable 2,506  3,035 
Deferred development costs 218  279 
Intangible assets and other assets, net 1,084  2,585 
Total assets$ 90,810 $73,377 
LIABILITIES AND EQUITY  
Current liabilities  
Accounts payable and accrued liabilities$ 16,998 $17,104 
Provisions 904  946 
Contract liabilities 3,288  216 
Current portion of bank debt 5,603  5,416 
Current portion of lease liabilities 1,755  - 
Income tax payable 115  639 
  28,663  24,321 
Non-current liabilities  
Bank debt 2,245  - 
Lease liabilities 11,608  - 
Deferred tax payable 1,373  1,297 
Total liabilities 43,889  25,618 
Equity  
Retained earnings$ 17,182 $17,745 
Accumulated other comprehensive loss (1,457) (1,554)
  15,725  16,191 
Share capital  
Common Shares 19,663  19,323 
Preferred Shares 2,218  2,218 
Contributed surplus 8,264  8,933 
Total equity attributable to FTG's shareholders 45,870  46,665 
Non-controlling interest 1,051  1,094 
Total equity 46,921  47,759 
Total liabilities and equity$ 90,810 $73,377 
   



FIRAN TECHNOLOGY GROUP CORPORATION       
Interim Condensed Consolidated Statements of Earnings (loss)      
          
   Three months ended Six months ended
(Unaudited)May 29, May 31, May 29, May 31,
(in thousands of Canadian dollars, except per share amounts)2020 2019 2020 2019
          
Sales $ 26,822  $32,235  $ 51,360  $57,625 
          
Cost of sales       
 Cost of sales 16,678   21,659   35,877   39,467 
 Depreciation of plant and equipment 1,069   859   2,063   1,687 
 Depreciation of right-of-use assets 401   -   786   - 
Total cost of sales 18,148   22,518   38,726   41,154 
Gross margin 8,674   9,717   12,634   16,471 
          
Expenses       
 Selling, general and administrative 4,056   4,119   7,487   7,361 
 Research and development costs 1,583   1,168   2,664   2,284 
 Recovery (reversal) of investment tax credits, net (203)  10   (375)  (195)
 Depreciation of plant and equipment 54   40   100   83 
 Depreciation of right-of-use assets 13   -   25   - 
 Amortization of intangible assets 97   272   396   543 
 Interest expense on bank debt, net 57   90   98   167 
 Accretion on lease liabilities 141   -   278   - 
 Stock based compensation 40   80   91   154 
 Foreign exchange (gain) loss (464)  140   (415)  296 
 Impairment of intangible assets -   -   1,145   - 
Total expenses 5,374   5,919   11,494   10,693 
          
Earnings before income taxes 3,300   3,798   1,140   5,778 
          
Current income tax expense 1,261   1,294   1,695   2,071 
Deferred income tax expense 41   54   76   84 
Total income tax expense 1,302   1,348   1,771   2,155 
          
Net earnings (loss)$ 1,998  $2,450  $ (631) $3,623 
          
Attributable to:       
Non-controlling interest$ (36) $(32) $ (68) $(77)
Equity holders of FTG$ 2,034  $2,482  $ (563) $3,700 
          
Earnings (loss) per share, attributable to the equity holders of FTG       
 Basic$ 0.09  $0.11  $ (0.02) $0.16 
 Diluted$ 0.08  $0.10  $ (0.02) $0.15 
          



FIRAN TECHNOLOGY GROUP CORPORATION       
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)    
         
  Three months ended Six months ended
(Unaudited)May 29, May 31, May 29, May 31,
(in thousands of Canadian dollars)2020 2019 2020 2019
         
Net earnings (loss)$ 1,998  $2,450  $ (631) $3,623 
         
Other comprehensive earnings (loss) to be reclassified to net earnings (loss)      
 in subsequent periods:       
         
 Change in foreign currency translation adjustments 518   302   766   290 
 Change in net unrealized loss on derivative financial instruments designated as cash flow hedges (478)  (1,258)  (860)  (1,325)
 Change in tax impact 120   314   216   331 
         
   160   (642)  122   (704)
         
Total comprehensive income (loss) $ 2,158  $1,808  $ (509) $2,919 
         
Attributable to:       
Equity holders of FTG$ 2,187  $1,851  $ (466) $2,967 
Non-controlling interest$ (29) $(43) $ (43) $(48)
         



FIRAN TECHNOLOGY GROUP CORPORATION      
Interim Condensed Consolidated Statements of Changes in Equity     
          
          
Six months ended May 29, 2020 Attributed to the equity holders of FTG  
      Accumulated   
      other  Non- 
(Unaudited)CommonPreferredRetainedContributedcomprehensive
   controlling Total
(in thousands of Canadian dollars)sharessharesearningssurpluslossTotalinterestequity
Balance, November 30, 2019$ 19,323 $ 2,218$ 17,745 $ 8,933 $ (1,554)$ 46,665 $ 1,094 $ 47,759 
Net (loss) -  - (563) -  -  (563) (68) (631)
Stock-based compensation -  - -  91  -  91  -  91 
Transfer from contributed surplus to share capital for           
 PSU’s exercised 760    (760) -  -  -  - 
Common shares repurchase and issue on exercise           
 of PSU's (420) - -  -  -  (420) -  (420)
Change in foreign currency translation adjustments  -  - -  -  741  741  25  766 
Change in net unrealized loss on derivative financial           
 instruments designated as cash flow hedges, net of           
 tax impact -  - -  -  (644) (644) -  (644)
Balance, May 29, 2020$ 19,663 $ 2,218$ 17,182 $ 8,264 $ (1,457)$ 45,870 $ 1,051 $ 46,921 
          
Six months ended May 31, 2019 Attributed to the equity holders of FTG   
      Accumulated   
      Other Non- 
(Unaudited)CommonPreferredRetainedContributedComprehensive controllingTotal
(in thousands of Canadian dollars)sharessharesearningssurpluslossTotalinterestequity
Balance, November 30, 2018$19,323 $2,218$11,687 $8,672 $(774)$41,126 $1,181 $42,307 
Net earnings (loss) -  - 3,700  -  -  3,700  (77) 3,623 
Stock-based compensation -  - -  154  -  154  -  154 
Change in foreign currency translation adjustments  -  - -  -  261  261  29  290 
Change in net unrealized loss on derivative financial       
 instruments designated as cash flow hedges        
 net of tax impact -  - -  -  (994) (994) -  (994)
Balance, May 31, 2019$19,323 $2,218$15,387 $8,826 $(1,507)$44,247 $1,133 $45,380 




FIRAN TECHNOLOGY GROUP CORPORATION        
Interim Condensed Consolidated Statements of Cash Flows       
            
      Three months ended Six months ended
(Unaudited) May 29, May 31, May 29, May 31,
(in thousands of Canadian dollars) 2020 2019 2020 2019
Net inflow (outflow) of cash related to the following:        
Operating activities        
Net earnings (loss) $ 1,998  $2,450  $ (631) $3,623 
Items not affecting cash:        
 Stock-based compensation  40   80   91   154 
 Loss on disposal of plant and equipment  -   (8)  6   (1)
 Effect of exchange rates on US dollar debt  145   140   198   126 
 Depreciation of plant and equipment  1,123   899   2,163   1,770 
 Depreciation of right-of-use assets  414   -   811   - 
 Amortization of intangible assets  97   272   396   543 
 Amortization, other  8   3   11   6 
 Impairment of intangible assets  -   -   1,145   - 
 Investment tax credits/deferred income taxes  518   206   605   552 
 Accretion on lease liabilities  141   -   278   - 
 Increase in net unrealized loss on derivative financial instruments        
  designated as cash flow hedges, net of taxes  711   (652)  425   (702)
Net change in non-cash operating working capital  (781)  (485)  3,241   (4,572)
      4,414   2,905   8,739   1,499 
Investing activities        
 Additions to plant and equipment  (1,439)  (610)  (2,485)  (1,001)
 Recovery (additions) of contract and other costs  43   (1)  49   (19)
      (1,396)  (611)  (2,436)  (1,020)
Net cash flow from (used in) operating and investing activities  3,018   2,294   6,303   479 
Financing activities        
 Decrease in bank indebtedness  -   (995)  -   - 
 Proceeds from bank debt  3,309   -   3,309   - 
 Repayments of bank debt  (535)  (512)  (1,038)  (1,021)
 Lease liability payments  (466)  -   (912)  - 
 Repurchase of common shares on exercise of PSU's  (420)  -   (420)  
      1,888   (1,507)  939   (1,021)
Effects of foreign exchange rate changes on cash flow  (800)  (101)  (631)  (172)
Net increase (decrease) in cash flow  4,106   686   6,611   (714)
Cash, beginning of the period  10,152   3,626   7,647   5,026 
Cash, end of period $ 14,258  $4,312  $ 14,258  $4,312 
            
Disclosure of cash payments        
 Payment for interest $ 54  $90  $ 109  $171 
 Payments for income taxes $ 138  $383  $ 1,117  $1,122 
            

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