LONGUEUIL, QUEBEC--(Marketwired - Nov. 9, 2015) - Heroux-Devtek Inc. (TSX:HRX), ("Heroux-Devtek" or the "Corporation"), a leading international manufacturer of aerospace products, today reported its results for the second quarter of fiscal 2016 ended September 30, 2015. Unless otherwise indicated, all amounts are in Canadian dollars.
"Heroux-Devtek achieved solid results in the second quarter, a period that is usually seasonally weaker due to plant shutdowns and summer vacations. This performance was driven by our increased reach in the commercial aerospace market, both in component production for large aircraft and in aftermarket products and services, as well as by the production ramp-up of certain business jet programs for which we designed the landing gear. This higher volume and a more favourable product mix led to a strong operating profitability improvement," said Gilles Labbe, President and CEO of Heroux-Devtek.
"During the quarter, Heroux-Devtek was awarded two important contracts that underline its commitment to its growth platforms. We obtained a life-cycle mandate from Finmeccanica-AgustaWestland to design, develop and fabricate complete landing gear systems for the AW609 TiltRotor aircraft, which demonstrates industry confidence in our world-class capabilities to provide value-added, turnkey solutions. In addition, our scope on the B-777 and B-777X programs was further expanded through a new contract to manufacture retract actuator assemblies beginning in early calendar 2017, which should coincide with the delivery of our first complete landing gear system for the aircraft. Finally, in regards to this long-term contract, we continue to progress with respect to the main initiatives of our capital investment plan," added Mr. Labbe.
SECOND QUARTER RESULTS
Consolidated sales reached $94.5 million, compared with $84.1 million in the second quarter of fiscal 2015. This 12.4% increase reflects the strength of the commercial aerospace market, while year-over-year fluctuations in the value of the Canadian currency versus the U.S. currency increased second-quarter sales by $11.4 million.
Commercial sales were $50.0 million, up 33.2% from $37.5 million last year. This increase was driven by greater content and higher production rates for certain large commercial programs, mainly the B-787 aircraft, higher sales of landing gear systems designed by Heroux-Devtek for business jets due to production ramp-up of the Embraer Legacy 450/500 program and initial deliveries for the Dassault Falcon 5X program, as well as higher aftermarket sales related to a new strategic alliance to support the Saab 340 program. Year-over-year currency fluctuations had a $6.0 million favourable effect on commercial sales.
Defence sales decreased 4.3% to $44.6 million. The variation reflects a reduction in manufacturing sales to civil customers, lower spare part requirements, mainly from the U.S. government, lower requirements by the U.S. Navy for repair and overhaul (R&O) services on the P-3 program, as well as a lower throughput in the U.K. These factors were partially offset by a $5.4 million favourable foreign exchange impact and higher R&O sales to the U.S. Air Force.
Gross profit reached $17.5 million, or 18.5% of sales, compared with $13.1 million, or 15.6% of sales, last year. The increase reflects favourable year-over-year currency fluctuations equivalent to 2.4% of sales and a better product mix driven by higher commercial aftermarket sales. Adjusted EBITDA stood at $14.6 million, or 15.5% of sales, versus $10.0 million, or 11.9% of sales, a year ago. Last year's adjusted EBITDA excluded restructuring charges of $0.8 million.
Adjusted net income was $6.0 million, or $0.17 per diluted share, in the second quarter of fiscal 2016, up from $3.8 million, or $0.11 per diluted share, in the second quarter of fiscal 2015, excluding restructuring charges of $0.6 million, net of taxes.
SIX-MONTH RESULTS
For the first six months of fiscal 2016, consolidated sales totalled $192.8 million, versus $170.5 million in the first six months of fiscal 2015. Year-over-year fluctuations in the value of the Canadian currency versus the U.S. currency increased sales by $19.3 million. Commercial sales rose 25.5% to $101.4 million, while sales of defence products increased 1.9% to $91.3 million.
Gross profit for the first half of fiscal 2016 amounted to $34.1 million, equivalent to 17.7% of sales, compared with $27.3 million, or 16.0% of sales, in the first half of fiscal 2015. Adjusted EBITDA reached $27.7 million, representing 14.4% of sales, up from $20.3 million, or 11.9% of sales, in the previous year. Finally, adjusted net income was $11.5 million, or $0.32 per diluted share, versus $7.6 million, or $0.22 per share, last year.
FINANCIAL POSITION
As at September 30, 2015, Heroux-Devtek's balance sheet remained healthy with cash and cash equivalents of $4.2 million, while total long-term debt was $133.9 million, including the current portion, but excluding net deferred financing costs. Long-term debt includes $72.2 million drawn against the Corporation's authorized Credit Facility of $200.0 million. As a result, the Corporation's net debt position stood at $129.7 million as at September 30, 2015, while the net-debt-to equity ratio was 0.41:1, up from 0.38:1 three months earlier. This increase mainly reflects the Corporation's investments in property, plant and equipment, as well as in working capital, related to the B-777 and B-777X contract.
UPDATE ON THE B-777 AND B-777X CONTRACT
Heroux-Devtek is making further progress towards meeting the requirements of the long-term contract to supply The Boeing Company ("Boeing") with complete landing gear systems for the B-777 and B-777X aircraft. In regards to the plan's main initiatives:
-- The new Cambridge, Ontario plant is operational;
-- Essentially all machinery and equipment has been installed in the Cambridge, Ontario; Springfield, Ohio; and Laval, Quebec facilities, and
is in varying stages of testing and approval;
-- All components necessary for the delivery of complete landing gear assemblies are in production;
-- The expansion of the Corporation's finishing and sub-assembly centre in Strongsville, Ohio, is completed. The new plating equipment is ready for
production and Heroux-Devtek is in its Customer qualification and approval process; and,
-- The final assembly facility in Everett, Washington has been completed ahead of schedule and is available for the installation of equipment.
Management remains confident that delivery of the pre-production shipset to Boeing will occur as planned in mid-calendar 2016 and that production requirements associated to deliveries scheduled to begin in early calendar 2017 will be met. As at September 30, 2015, the Corporation had invested approximately $101 million related to this contract.
OUTLOOK
Conditions remain favourable in the commercial aerospace market. In the large commercial aircraft segment, manufacturers are proceeding with production rate increases on several leading programs scheduled through calendar 2018 and with the introduction of more fuel efficient variants of existing aircraft over the next several years. Their backlogs remain strong, representing more than eight years of production at current rates. In the business jet market, the production ramp-up of business jet models for which Heroux-Devtek has designed the landing gear should provide sustained growth for the Corporation for several years. In the defence aerospace market, a recent budget agreement provides additional funding for the U.S. Government's next two fiscal years, but uncertainty remains beyond that period given the need to address the deficit. The Corporation's UK operations provide Heroux-Devtek with a more geographically diversified defence portfolio, which reduces its relative exposure to the U.S. market. The balance between new component manufacturing and aftermarket products and services in the Corporation's defence portfolio and its leading program content also promote stability.
As at September 30, 2015, Heroux-Devtek's funded (firm orders) backlog stood at $427 million, versus $444 million three months earlier.
"Given first half results and forces driving our main markets, we continue to expect an organic sales growth of approximately 10% for the entire fiscal year, with commercial sales growing in excess of 10% and defence sales experiencing a slight increase. More importantly, Heroux-Devtek remains committed to the execution of its strategic plan in order to reach its long-term objectives and create lasting value for shareholders. Recent long-term contract awards demonstrate our growing reach in the global landing gear market and validate our focus on the main growth platforms that will provide Heroux-Devtek with a solid and sustainable foundation to capture additional business opportunities," concluded Mr. Labbe.
