- 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.
%SEDAR: 00018026E
