- Q1 results in line with expectations and with forecast for record year in fiscal 2007 - Establishes "Defence Electronics" and "Protective Products & Services" divisions and announces strategic plan OTTAWA, Feb. 14 /CNW Telbec/ - Allen-Vanguard Corporation (the "Company" or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada reported today its financial results for the first quarter ended December 31, 2006. All figures are in Canadian dollars. First Quarter ("Q1") Highlights Revenue was $10.2 million in Q1 2007, an increase of 15% over $8.9 million in Q1 2006. EBITDA(1) was a loss of $0.4 million in Q1 2007, compared to a loss of $1.7 million in Q1 2006. The net loss for Q1 2007 was $0.5 million or $0.01 per share, compared to a net loss of $2.5 million or $0.07 per share in Q1 2006. "First quarter results are in line with expectations," said Company President and CEO David E. Luxton. "As previously stated, we devoted effort in this quarter to significant longer term opportunities with Lockheed Martin and we expect to begin seeing the benefit of that action soon." The Company noted that order flow on all fronts remains strong, and it expects strong performance for the balance of the fiscal year and a record year for revenue and earnings. Strategic update The Company also announced plans to grow the business on two strategic fronts to maximize value from a diversified and balanced business platform with transparency of results. The Company's proprietary Electronic Counter Measures (ECM) technology is evolving into a platform that ultimately has multiple functions in defence and security, much as the mobile phone has become a platform that enables many applications. "This is the anchor to our newly named Defence Electronics division," said Mr. Luxton. "This business has high growth potential over the long term, driven by innovation and acquisition or licensing of technology add-ons." The Company's second operating division will be Protective Products & Services, encompassing its more traditional business lines which include Explosive Ordnance Disposal (EOD), search equipment (Search) and Chemical-Biological-Radiological-Nuclear (CBRN) protection, plus ancillary products and training. "These businesses provide a more predictable earnings base with steady, moderate growth," continued Mr. Luxton. "However, they are under-represented in North America and they also gain more value with scale, both of which we intend to address through a program of acquisition." The Company noted that the consolidation currently underway in this industry segment offers attractive opportunities to quickly expand the Protective Products & Services division. "Our acquisition criteria are very clear," added Mr. Luxton. "In Defence Electronics we seek to maintain and grow Allen-Vanguard's technology and market leadership position by selective, strategic technology add-ons, which may also be accomplished alternatively by licensing. In Protective Products & Services we seek to gain significant scale from companies that are a strategic fit and have product or market synergies, established earnings, solid management, and involve minimum integration. We have a strong balance sheet to fund acquisitions following our November 2nd, 2006 financing, and the anticipated exercise of in-the-money warrants expiring on March 15th, 2007, should add a further $8 million in equity, raising our net cash and short-term investment balances to $27 million. The Company expects this program of strategic expansion will balance its business platform as a whole. "We will grow the business on two strategic fronts. A larger base of more predictable earnings and cash flow in the near term from our Protective Products & Services division will underpin and balance the significant upside potential of our Defence Electronics division over the long term," concluded Mr. Luxton. The Company noted that management of each of the two newly constituted divisions will focus on their respective growth strategies and different characteristics and will have P&L and capital allocation responsibility. Full segmented disclosure of the two divisions will be provided so investors can monitor progress and measure value creation. The Company also announced today that it has changed its auditors from Soberman LLP to KPMG LLP effective January 22nd, 2007. The Company sent a change of auditor notice to each of KPMG and Soberman and has filed the appropriate responses addressed to the applicable securities commissions and to the TSX on SEDAR. The Company said that while it has been very pleased with the services of Soberman it is more consistent with its growth plans and the international nature of its business to engage KPMG going forward. Highlights of Q1 results Revenue - Allen-Vanguard's revenue was $10.2 million in Q1 2007, compared to $8.9 million in Q1 2006, an increase of 15%. - Revenue from ECM products represented 42% of Q1 2007 revenue, compared to only 11% in Q1 2006. Revenue from the Lockheed Martin Agreement accounted for $2.7 M of the Q1 2007 tally, with the balance derived from international contracts. Allen-Vanguard expects to complete production of the balance of the initial $8 million Lockheed Martin component order during Q2 2007, and continues to work on technology enhancements which it expects will trigger additional order flow. - Revenue from EOD products was $3.6 million in Q1 2007, down 48% compared to Q1 2006, with the shortfall comprised of the $3.1 million integrated equipment and service package to an Asian military group shipped in the prior year quarter. Following the traditionally weaker summer selling period, the pace of EOD order intake increased substantially in Q1 2007 with many deliveries scheduled over the next two quarters. - Revenue from CBRN products rose sharply to $1.9 million in Q1 2007 from $1.2 million in Q1 2006, primarily due to fulfillment of the Swiss military order for decontaminant products. - Revenue generated in North America totaled $4.9 million in Q1 2007, compared to only $1.9 million in Q1 2006. ECM revenue derived from the LM Agreement accounted for most of the improvement in Q1 2007, but order intake for the Company's non-ECM products has also picked up somewhat in recent months. Revenue generated outside of North America totaled $5.3 million in Q1 2007, compared to $7.0 million in Q1 2006. The previously noted $3.1 million Asian military group contract in Q1 2006 was responsible for the performance differential. Gross Margin - Overall gross margin was 47% in Q1 2007 compared to 40% in Q1 2006. - Gross margin on the ECM and EOD segment was 50% in Q1 2007, a substantial improvement over the Q1 2006 figure of 38%. The stronger segment margin was due to the relatively high proportion of ECM revenue in Q1 2007, in contrast to the prior year quarter when the somewhat lower margin Asian military contract was the largest revenue contributor. - The CBRN segment reported gross margin of 36% in Q1 2007, compared to only 14% in Q1 2006. The differential performance was primarily attributed to improved decontaminant margins in Q1 2007, and adjustments to cost of sales that resulted in a negative gross profit of $0.2 million for CBRN training services in Q1 2006. Overheads - Selling and administration expenses were $4.1 million in Q1 2007, compared to $4.4 million in Q1 2006. - Research and development expenses, net of grants received and investment tax credits were $1.0 million in Q1 2007, compared to $0.8 million in Q1 2006. Earnings Measures - Earnings before interest, taxes, amortization, stock-based compensation, foreign exchange, and goodwill impairment ("EBITDA") was a loss of $0.4 million in Q1 2007, a major improvement compared to an EBITDA loss of $1.7 million in Q1 2006. - The Company recorded a net income tax recovery of $0.3 million in Q1 2007, related to the carry-back of operating losses incurred by Allen-Vanguard's U.K. subsidiary in Q1 2007 against prior year taxable income. - The net loss for Q1 2007 was $0.5 million or $0.01 per share, compared to a net loss of $2.5 million or $0.07 per share in Q1 2006. Liquidity and Capital Resources - The 02-Nov-06 Financing provided net cash proceeds of $14.6 million. - Allen-Vanguard's cash and short-term investments, net of bank indebtedness, at the end of Q1 2007 amounted to $19.1 million, and working capital totaled $30.3 million. - Purchases of property, plant and equipment totaled $0.7 million in Q1 2007, as the Company nears completion of leasehold and equipment additions to its Tewkesbury facility to increase ECM production capacity. - Allen-Vanguard had common shares outstanding of 41.8 million and fully diluted shares of 51.1 million at the end of Q1 2007. - The Company had outstanding in-the-money warrants to purchase 5.3 million and 0.5 million common shares at exercise prices of $2.00 and $1.95 per share respectively, which expire on 15-Mar-07. Subsequent to the end of Q1 2007, the Company has received proceeds in excess of $3 million from the exercise of these warrants, and up to a further $8 million could be received prior to their expiry date. Financial Statements and the Management Discussion and Analysis for the first quarter ended 31-Dec-06 will be filed on www.sedar.com on 14-Feb-07. (1) Earnings before interest, taxes, amortization, stock-based compensation and foreign exchange. About Allen-Vanguard Allen-Vanguard Corporation and its subsidiaries worldwide operate under the brand "Allen-Vanguard". The Company develops and markets technologies, tools and training for defeating and minimizing the effects of hazardous devices and materials, whether Chemical, Biological, Radiological, Nuclear or Explosive (CBRNE). The Company's equipment is in service with leading security and military forces in more than 120 countries. Products include Electronic Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"), remote intervention robots for hazardous applications, vehicle barrier systems, and personal protective wear for use in dealing with bio-chemical agents. Allen-Vanguard is the sole, worldwide licensee and/or developer of patented technologies such as the Universal Containment System and CASCAD Foam for blast mitigation and decontamination of bio-chemical warfare agents. Head office operations are located in Ottawa, Ontario, Canada, with manufacturing operations in Stoney Creek, Ontario; Tewkesbury, U.K.; and Cork, Ireland, and sales offices in Canada, the U.S., the U.K. and Asia. The Company's shares are listed on The Toronto Stock Exchange (TSX: VRS). The web site is www.allen-vanguard.com. This press release may contain forward-looking statements relating to, among other things, the Company's expectations concerning future product demand and growth opportunities and customer acceptance of Company's products. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. The Company disclaims any obligation to publicly update or revise any such statements. The Toronto Stock Exchange has neither approved nor disapproved the contents of this press release. To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our website at www.allen-vanguard.com.