Magellan Aerospace Corporation Announces Financial Results

TORONTO--()--Magellan Aerospace Corporation (“Magellan” or the “Corporation”) released its financial results for the second quarter of 2019. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

 

 

Three month period ended
June 30

Six month period ended
June 30

Expressed in thousands of Canadian dollars, except per share amounts

2019

2018

Change

2019

2018

Change

Revenues

 

264,082

241,221

9.5%

533,966

485,846

9.9%

Gross Profit

 

45,090

41,273

9.2%

87,911

81,701

7.6%

Net Income

 

21,716

23,464

(7.4)%

42,125

40,928

2.9%

Net Income per Share

 

0.37

0.40

(7.5)%

0.72

0.70

2.9%

EBITDA

 

42,675

41,786

2.1%

83,168

75,924

9.5%

EBITDA per Share

 

0.73

0.72

1.4%

1.43

1.30

10.0%

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.

1. Overview
A summary of Magellan’s business and significant updates
Magellan is a diversified supplier of components to the aerospace industry. 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.

Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.

Business Update
On May 14, 2019, Magellan announced that it will continue producing F-35 Lightning II (“F-35”) horizontal tail assemblies under an agreement with BAE Systems. The agreement is the continuation of contract awards previously granted to Magellan by BAE Systems and with the additional quantities awarded, Magellan will now on a go forward basis produce more than double the horizontal tails from what has so far been produced for the program. Annual deliveries will ramp up to 60 per year within the three year period. Magellan, through its operations in Winnipeg, Manitoba, and BAE Systems have been working together to produce horizontal tails for the global F-35 program for more than a decade, signing the original Letter of Intent for this agreement in 2006.

For additional information, please refer to the “Management’s Discussion and Analysis” section of the Corporation’s 2018 Annual Report available on www.sedar.com.

2. Results of Operations
A discussion of Magellan’s operating results for second quarter ended June 30, 2019

The Corporation reported revenue in the second quarter of 2019 of $264.1 million, a $22.9 million improvement from the second quarter of 2018 of $241.2 million. Gross profit and net income for the second quarter of 2019 were $45.1 million and $21.7 million, respectively, in comparison to gross profit of $41.3 million and net income of $23.5 million for the second quarter of 2018.

Consolidated Revenue

 

Three month period

Six month period

 

ended June 30

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

Canada

 

96,185

 

77,689

 

23.8%

 

186,886

 

156,345

 

19.5%

United States

 

83,128

 

83,509

 

(0.5%)

 

167,947

 

163,085

 

3.0%

Europe

 

84,769

 

80,023

 

5.9%

 

179,133

 

166,416

 

7.6%

Total revenues

 

264,082

 

241,221

 

9.5%

 

533,966

 

485,846

 

9.9%

Consolidated revenues for the three months ended June 30, 2019 were $264.1 million, an increase of $22.9 million from the $241.2 million recorded for the same period in 2018. Revenues in Canada increased 23.8% in the second quarter of 2019 in comparison to the same period in 2018, primarily due to higher volumes in repair and overhaul services and proprietary products, and the strengthening of the United States dollar relative to the Canadian dollar when compared to the prior period. On a currency neutral basis, Canadian revenues in the second quarter of 2019 increased by 21.6% over the same period of 2018.

Revenues in United States slightly decreased 0.5% in the second quarter of 2019 compared to the second quarter of 2018 when measured in Canadian dollars mainly due to single aisle aircraft volume decreases on the Boeing 737 Max, offset in part by favourable foreign exchange impact due to the strengthening of the United States dollar against the Canadian dollar. On a currency neutral basis, revenues in the United States decreased 3.8% in the second quarter of 2019 over the same period in 2018.

European revenues increased 5.9% in the second quarter of 2019 compared to the corresponding period in 2018 primarily driven by increased production rates for single aisle and wide body aircraft, and the strengthening of the United States dollar relative to the British pound, offset partially by the unfavourable foreign exchange impact due to the weakening of the British pound against the Canadian dollar. On a constant currency basis, revenues in the second quarter of 2019 in Europe increased 3.7% when compared to the same period in 2018.

Gross Profit

 

Three month period

Six month period

 

ended June 30

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

Gross profit

 

45,090

 

41,273

 

9.2%

 

87,911

 

81,701

 

7.6%

Percentage of revenues

 

17.1%

 

17.1%

 

 

 

16.5%

 

16.8%

 

 

Gross profit of $45.1 million for the second quarter of 2019 was $3.8 million higher than the second quarter of 2018 gross profit of $41.3 million, and gross profit as a percentage of revenues of 17.1% for the second quarter of 2019 was consistent with the same period in 2018. The gross profit in the current quarter was primarily driven by higher volumes in repair and overhaul services and proprietary products in Canada, and the favourable foreign exchange due to the strengthening year over year of the United States dollar against the Canadian dollar and the British pound, offset partially by lower production volumes in the United States.

Administrative and General Expenses

 

Three month period

Six month period

 

ended June 30

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

Administrative and general expenses

 

16,290

 

14,184

 

14.8%

 

31,590

 

28,812

 

9.6%

Percentage of revenues

 

6.2%

 

5.9%

 

 

 

5.9%

 

5.9%

 

 

Administrative and general expenses as a percentage of revenues of 6.2% for the second quarter of 2019 were 0.3% higher than the same period of 2018. Administrative and general expenses increased $2.1 million to $16.3 million in the second quarter of 2019 compared to $14.2 million in the second quarter of 2018 mainly due to costs incurred for the phased implementation of a new ERP program, and higher costs in relation to the Corporation’s India facilities. In the second quarter of 2018, a one-time gain of $0.5 million was recorded related to facility rental costs.

Other

 

Three month period

Six month period

 

ended June 30

 

ended June 30 

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Foreign exchange gain

 

(1,106)

 

(3,774)

 

(653)

 

(1,604)

Loss (gain) on disposal of property, plant and equipment

 

38

 

24

 

(47)

 

112

Other

 

815

 

 

1,005

 

Total other

 

(253)

 

(3,750)

 

305

 

(1,492)

 

Other for the second quarter of 2019 included a $1.1 million compared to a $3.8 million foreign exchange gain in the same period of 2018, mainly driven by the movements in balances denominated in the foreign currencies and the fluctuations of the foreign exchange rates. In addition, $0.8 million of one-time relocation expenses were incurred for the Corporation’s Mississauga facility.

Interest Expense

 

Three month period

Six month period

 

ended June 30

 

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Interest on bank indebtedness and long-term debt

 

166

 

286

 

126

 

674

Accretion charge for borrowings, lease liabilities and long-term debt

 

628

 

248

 

1,173

 

510

Discount on sale of accounts receivable

 

497

 

536

 

1,060

 

964

Total interest expense

 

1,291

 

1,070

 

2,359

 

2,148

 

Total interest expense of $1.3 million in the second quarter of 2019 was $0.2 million higher than the second quarter of 2018 amount of $1.1 million mainly due to accretion charge for the lease liabilities as a result of adoption of the new lease accounting standard, partially offset by decreased interest on bank indebtedness and long-term debt as principal amounts were lower during the quarter.

Provision for Income Taxes

 

Three month period

Six month period

 

ended June 30

 

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Current income tax expense

 

2,506

 

3,812

 

5,311

 

7,690

Deferred income tax expense

 

3,540

 

2,493

 

6,221

 

3,615

Income tax expense

 

6,046

 

6,305

 

11,532

 

11,305

Effective tax rate

 

21.8%

 

21.2%

 

21.5%

 

21.6%

 

Income tax expense for the three months ended June 30, 2019 was $6.0 million, representing an effective income tax rate of 21.8% compared to 21.2% for the same period of 2018. The change in effective tax rate and current and deferred income tax expenses year over year was primarily due to change in mix of income across the different jurisdictions in which the Corporation operates.

3. Selected Quarterly Financial Information
A summary view of Magellan’s quarterly financial performance

 

 

2019

 

 

 

2018

 

2017

Expressed in millions of dollars,

except per share amounts

Jun 30

Mar 31

Dec 31

Sep 30

Jun 30

Mar 31

Dec 312

Sep 302

Revenues

264.1

269.9

254.4

226.5

241.2

244.6

232.7

222.6

Income before taxes

29.1

25.9

38.5

23.4

29.8

22.5

28.4

23.6

Net Income

21.7

20.4

29.5

18.6

23.5

17.5

31.9

18.1

Net Income per share

 

 

 

 

 

 

 

 

Basic and diluted

0.37

0.35

0.51

0.32

0.40

0.30

0.55

0.31

EBITDA1

42.7

40.5

50.7

35.5

41.8

34.1

40.1

35.8

1 EBITDA is not an IFRS financial measure. Please see the “Reconciliation of Net Income to EBITDA” section for more information.
2 Restated using revenue recognition policies in accordance with IFRS 15, Revenue from Contracts with Customers.

Revenues and net income reported in the quarterly financial information were impacted by the movements in the Canadian dollar relative to the United States dollar and British pound when the Corporation translates its foreign operations to Canadian dollars. Further, the movements in the United States dollar relative to the British pound impact the Corporation’s United States dollar exposures in its European operations. During the periods reported, the average exchange rate of the United States dollar relative to the Canadian dollar fluctuated between a high of 1.3292 in the first quarter of 2019 and a low of 1.2526 in the third quarter of 2017. The average exchange rate of the British pound relative to the Canadian dollar moved from a high of 1.7607 in the first quarter of 2018 to a low of 1.6398 in the third quarter of 2017. The average exchange rate of the British pound relative to the United States dollar reached its high of 1.3920 in the first quarter of 2018 and hit a low of 1.2703 in the second quarter of 2019.

Revenue for the second quarter of 2019 of $264.1 million was higher than that in the second quarter of 2018. The average exchange rate of the United States dollar relative to the Canadian dollar in the second quarter of 2019 was 1.3375 versus 1.2912 in the same period of 2018. The average exchange rate of British pound relative to the Canadian dollar decreased from 1.7567 in the second quarter of 2018 to 1.7190 during the current quarter. The average exchange rate of the British pound relative to the United States dollar decreased from 1.3605 in the second quarter of 2018 to 1.2852 in the current quarter. Had the foreign exchange rates remained at levels experienced in the second quarter of 2018, reported revenues in the second quarter of 2019 would have been lower by $6.2 million.

As discussed above, net income reported in the quarterly information was also impacted by the foreign exchange movements. In the third quarter of 2017, the Corporation recorded a gain of $2.2 million on the disposition of an investment property. In the fourth quarter of 2017, the Corporation recognized the future tax benefit attributable to a reduction in the United States federal corporate income tax as a result of new legislation. In the fourth quarter of 2018, the Corporation recorded a net gain of $9.7 million related to prior acquisitions.

4. Reconciliation of Net Income to EBITDA
A description and reconciliation of certain non-IFRS measures used by management

In addition to the primary measures of earnings and earnings per share (basic and diluted) in accordance with IFRS, the Corporation includes EBITDA (earnings before interest expense, income taxes and depreciation and amortization) in this quarterly statement. The Corporation has provided this measure because it believes this information is used by certain investors to assess financial performance and that EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how these activities are financed and how the results are taxed in the various jurisdictions. Each of the components of this measure are calculated in accordance with IFRS, but EBITDA is not a recognized measure under IFRS, and the Corporation’s method of calculation may not be comparable with that of other companies. Accordingly, EBITDA should not be used as an alternative to net income as determined in accordance with IFRS or as an alternative to cash provided by or used in operations.

 

Three month period

Six month period

 

ended June 30

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Net income

 

21,716

 

23,464

 

42,125

 

40,928

Interest

 

1,291

 

1,070

 

2,359

 

2,148

Taxes

 

6,046

 

6,305

 

11,532

 

11,305

Depreciation and amortization

 

13,622

 

10,947

 

27,152

 

21,543

EBITDA

 

42,675

 

41,786

 

83,168

 

75,924

 

EBITDA increased $0.9 million or 2.2% to $42.7 million for the second quarter of 2019, compared to $41.8 million in the second quarter of 2018 mainly as a result of higher interest, and depreciation and amortization expenses mainly driven by the implementation of new accounting standard, offset by lower net income and taxes.

5. Liquidity and Capital Resources
A discussion of Magellan’s cash flow, liquidity, credit facilities and other disclosures

The Corporation’s liquidity needs can be met through a variety of sources including cash on hand, cash provided by operations, short-term borrowings from its credit facility and accounts receivable securitization program, and long-term debt and equity capacity. Principal uses of cash are for operational requirements, capital expenditures and dividend payments. Based on current funds available and expected cash flow from operating activities, management believes that the Corporation has sufficient funds available to meet its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital projects exceed current estimates, or if the Corporation incurs major unanticipated expenses, it may be required to seek additional capital in the form of debt or equity or a combination of both.

Cash Flow from Operations

 

Three month period

Six month period

 

ended June 30

 

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Decrease (increase) in accounts receivable

 

9,020

 

1,904

 

(13,686)

 

(14,299)

Increase in contract assets

 

(6,588)

 

(17,113)

 

(18,324)

 

(23,912)

(Increase) decrease in inventories

 

(5,962)

 

(2,366)

 

(8,024)

 

1,498

Increase in prepaid expenses and other

 

(590)

 

(2,358)

 

(3,416)

 

(5,420)

(Decrease) increase in accounts payable, accrued

liabilities and provisions

 

(7,941)

 

862

 

4,475

 

(13,465)

Changes in non-cash working capital balances

 

(12,061)

 

(19,071)

 

(38,975)

 

(55,598)

Cash provided by operating activities

 

25,674

 

17,174

 

33,772

 

8,579

 

For the three months ended June 30, 2019 the Corporation generated $25.7 million from operating activities, compared to $17.2 million in the second quarter of 2018. The quarter over quarter increase in cash flow from operations was as a result of the favourable movement of non-cash working capital balances, largely due to changes in accounts receivable and contract assets from the timing of production and billing related to products transferred over time, respectively. This was offset in part by the decrease in accounts payable, accrued liabilities and provisions due to the nature of purchases and timing of payments.

Investing Activities

 

Three month period

Six month period

 

ended June 30

ended June 30

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

Business combination, net of cash acquired

 

 

 

(2,661)

 

Purchase of property, plant and equipment

 

(8,839)

 

(5,497)

 

(18,346)

 

(13,063)

Proceeds of disposals of property, plant and equipment

 

124

 

178

 

359

 

199

(Increase) decrease in intangible and other assets

 

(3,163)

 

2,831

 

(9,229)

 

2,077

Change in restricted cash

 

 

2,714

 

 

Cash (used in) provided by investing activities

 

(11,878)

 

226

 

(29,877)

 

(10,787)

 

Investing activities used $11.9 million in cash for the second quarter of 2019 compared to providing $0.2 million in the same quarter of the prior year, a significant change from the prior year primarily due to higher level of investment in property, plant and equipment, and higher deposits recorded in the other assets during the quarter. The Corporation continues to invest in capital expenditures to enhance its manufacturing capabilities in various geographies and to support new customer programs.

Financing Activities

 

Three month period

Six month period

 

ended June 30

ended June 30

 

Expressed in thousands of dollars

 

2019

 

2018

 

2019

 

2018

(Decrease) increase in bank indebtedness

 

(89)

 

(8,495)

 

(131)

 

6,951

(Decrease) increase in debt due within one year

 

(1,600)

 

1,211

 

(8,484)

 

(5,822)

Decrease in long-term debt

 

(802)

 

(608)

 

(1,449)

 

(13,874)

Lease liability payments

 

(783)

 

 

(1,684)

 

Decrease in long-term liabilities and provisions

 

(144)

 

(57)

 

(179)

 

(131)

(Decrease) increase in borrowings subject to specific conditions, net

 

(822)

 

1,285

 

(822)

 

1,310

Common share dividend

 

(5,821)

 

(4,948)

 

(11,642)

 

(9,896)

Cash used in financing activities

 

(10,061)

 

(11,612)

 

(24,391)

 

(21,462)

 

On September 13, 2018, the Corporation amended its credit agreement with its existing lenders. The Corporation has a multi-currency operating credit facility with a syndicate of banks, with a Canadian dollar limit of $75 million. Under the terms of the amended credit agreement, the operating credit facility expires on September 13, 2020. Extensions of the facility are subject to mutual consent of the syndicate of lenders and the Corporation. The credit agreement also includes a $75 million uncommitted accordion provision which will provide the Corporation with the option to increase the size of the operating credit facility.

The Corporation used $10.1 million in financing activities in the second quarter of 2019 mainly to repay debt due within one year, long-term debt, lease liabilities, borrowings subject to specific conditions, and the payment of dividends.

As at June 30, 2019 the Corporation had made contractual commitments to purchase $13.1 million of capital assets.

Dividends
During the first and second quarter of 2019, the Corporation declared and paid quarterly cash dividends of $0.10 per common shares representing an aggregating dividend payment of $11.6 million.

Subsequent to June 30, 2019, the Corporation announced that its Board of Directors had declared a quarterly cash dividend on its common shares of $0.10 per common share. The dividend will be payable on September 30, 2019 to shareholders of record at the close of business on September 16, 2019.

Outstanding Share Information

The authorized capital of the Corporation consists of an unlimited number of Preference Shares, issuable in series, and an unlimited number of common shares. As at August 2, 2019, 58,209,001 common shares were outstanding and no preference shares were outstanding..

6. Financial Instruments
A summary of Magellan’s financial instruments

Derivative Contracts
The Corporation operates internationally, which gives rise to a risk that its income, cash flows and shareholders’ equity may be adversely impacted by fluctuations in foreign exchange rates. Currency risk arises because the amount of the local currency receivable or payable for transactions denominated in foreign currencies may vary due to changes in exchange rates and because the non-Canadian dollar denominated financial statements of the Corporation’s subsidiaries may vary on consolidation into the reporting currency of Canadian dollars. The Corporation from time to time may use derivative financial instruments to help manage foreign exchange risk with the objective of reducing transaction exposures and the resulting volatility of the Corporation’s earnings. The Corporation does not trade in derivatives for speculative purposes. Under these contracts the Corporation is obligated to purchase specified amounts at predetermined dates and exchange rates. These contracts are matched with anticipated cash flows in United States dollars. The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings. As at June 30, 2019, the Corporation had $19.0 million USD/CAD foreign exchange contracts outstanding with an immaterial fair value, expiring monthly until December 2019.

Off Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements that have or reasonably are likely to have a material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, the Corporation is not exposed materially to any financing, liquidity, market or credit risk that could arise if it had engaged in these arrangements.

7. Related Party Transactions
A summary of Magellan’s transactions with related parties

For the three and six month periods ended June 30, 2019, the Corporation had no material transactions with related parties as defined in IAS 24 Related Party Disclosures.

8. Risk Factors
A summary of risks and uncertainties facing Magellan

The Corporation manages a number of risks in each of its businesses in order to achieve an acceptable level of risk without hindering the ability to maximize returns. Management has procedures to help identify and manage significant operational and financial risks.

For more information in relation to the risks inherent in Magellan’s business, reference is made to the information under “Risk Factors” in the Corporation’s Management’s Discussion and Analysis for the year ended December 31, 2018 and to the information under “Risks Inherent in Magellan’s Business” in the Corporation’s Annual Information Form for the year ended December 31, 2018, which have been filed with SEDAR at www.sedar.com.

9. Outlook
The outlook for Magellan’s business in 2019

Magellan Aerospace participated in the 53rd Paris International Air Show (“PIAS”) held between June 17th and June 23rd 2019. PIAS officials recorded a total of 2,453 exhibitors representing 48 countries. There were 866 commercial aircraft order commitments plus options announced worth $140 billion. Orders statistics were down from the 2018 Farnborough Air Show and the 2017 PIAS which recorded 1,464 and 1,226 orders respectively.

Boeing presented its updated commercial market outlook in Paris. Boeing estimates the world fleet will grow from 25,830 aircraft to 50,660 aircraft by 2038, comprising of 19,210 replacements, 24,830 market growth aircraft and 6,620 retained aircraft. A majority (39%) of the 44,040 replacement and growth aircraft are expected to come from the Asia-Pacific region with North America and Europe representing 21% and 20% respectively. Although commercial aircraft order backlogs for Airbus and Boeing are down slightly from the records set by the end of 2018, backlogs still remain strong. As of June 30, 2019, Airbus’ backlog was at 7,276 jets on order and Boeing’s backlog was at 5,733.

In the single aisle market, Boeing continues to build 737’s at a temporarily reduced production rate of 42 aircraft per month. It was announced in June that an additional fix was required on the grounded 737 MAX aircraft, making October the earliest possible return to service date. This is significantly later than most airlines had expected. The impact of the lower production rate is continually being assessed by Magellan as additional information is obtained. The build rate was originally planned to grow from 52 to 57.7 aircraft per month by the third quarter of this year. Despite program delays however, Boeing secured a deal with International Airlines Group in Paris for 200 of the 737 MAX aircraft.

Airbus is currently producing the A320 at a rate of 58 aircraft per month, with plans to reach 63 aircraft per month later in 2019. During PIAS 2019, Airbus launched a new longer-range model of their A321 aimed at the mid-market category where Boeing was to launch its New Midsize Airplane. The new A321XLR program secured orders and commitments, including conversions for 249 aircraft at the show. In addition, Airbus was successful in securing commitments for 85 A220 aircraft, the first new business recorded for the program since 2018.

In the large commercial aircraft market, Boeing’s 787 program is now running at 14 aircraft per month, up from a rate of 12 aircraft per month in the first quarter of 2019. The 777 program rate remains steady at 5 aircraft per month as 777X production ramps up and other 777 models ramp down. Boeing is expected to deliver three 777X aircraft in 2019. Airbus’ A330 build rate is now at 3.5 aircraft per month, down from 4.5 aircraft per month. The A350XWB rate is at 9.8 aircraft per month. Finally Airbus plans to end A380 production in July 2020.

The regional turboprop segment was successful at PIAS 2019 with orders and options placed for 153 aircraft. ATR claimed orders for 78 ATR-42 and 67 ATR-72 aircraft. The new ATR 42-600S short take-off and landing variant was officially launched in Paris, and received orders from three customers. In June 2019, Longview Aviation Capital completed its acquisition of the Dash 8 from Bombardier and placed the programme into a newly formed holding company called De Havilland Aircraft of Canada Limited. De Havilland Aircraft inherited a backlog of 51 Q400’s and announced orders for 6 Q400’s in Paris.

In the U.S. defence market, the Defense Department’s 2020 budget proposal focuses on “stabilizing or reducing” current production aircraft “while ramping up spending on the next generation of military technology”, according to Aviation Week. Although some analysts consider the US$750 billion budget proposal to be a ceiling, the U.S. Defense Department’s spending plan calls for annual increases through fiscal 2024. A percentage of the budget will go towards Future Vertical Lift programs.

In the fighter segment, France, Germany and Spain launched a sixth-generation Future Combat Air System programme during PIAS 2019. France’s Dassault will serve as the prime contractor, with Airbus leading the development of accompanying carrier vehicles and systems, and Safran and MTU collaborating on engines. The first flight is expected in 2026.

Lockheed Martin’s F-35 program achieved several significant milestones during the second quarter of 2019. The first was that 200,000 flight hours were achieved across all global operations. The second was that 400 F-35’s had been delivered, comprising of 283 F-35A’s, 87 F-35B’s and 30 F-35C’s. The most important milestone was that the F-35 Joint Program Office and Lockheed Martin had reached an agreement to deliver an F-35A unit cost below $80 million in Lot 13 in 2019, one year earlier than committed. The record agreement covers more than 470 total F-35s worth US$34 billion over three separate contracts, known as Lots 12 to 14.

In Canada, the Future Fighter Replacement Program is progressing with four of the original five aircraft continuing in the competition, Lockheed Martin’s F-35, Boeing’s Super Hornet, the Eurofighter Typhoon, and Saab’s Gripen. The final request for proposal ("RFP") was issued to the bidders in July 2019. A considerable level of effort was directed at various elements of the RFP documentation based on feedback received from the prospective bidders. Two bid responses have been requested by the Government. The first response is scheduled for fall of 2019 and the final proposal is due in the spring 2020. A down selection is expected in 2020 or 2021 followed by the identification of the selected bidder which is expected in early 2022. The first aircraft delivery is planned to be in 2025.

As a final note, further industry consolidation is set to take place in early 2020 with the merger of United Technologies Corporation and Raytheon Company. It was announced in June 2019 that they had entered into an agreement to combine in an all-stock “merger of equals”, creating a combined company named Raytheon Technologies Corporation.

Additional Information
Additional information relating to Magellan Aerospace Corporation, including the Corporation’s annual information form, can be found on the SEDAR web site at www.sedar.com.

Forward Looking Statements
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 uncertainties and assumptions, which may cause actual results to be materially different from those expressed or implied. These forward looking statements can be identified by the words such as "anticipate", "continue", "estimate", "forecast", “expect”, "may", "project", "could", "plan", "intend", "should", "believe" and similar words suggesting future events or future performance. In particular there are forward looking statements contained under the heading "Overview" which outlines certain expectations for future operations. These statements assume the continuation of the current regulatory and legal environment; the continuation of trends for passenger airliner and defence production and are subject to the risks contained herein and outlined in our annual information form. The Corporation assumes no future obligation to update these forward-looking statements except as required by law.

MAGELLAN AEROSPACE CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

(unaudited)

 

Three month period

ended June 30

Six month period

ended June 30

 

(expressed in thousands of Canadian dollars, except per share amounts)

 

2019

2018

2019

2018

 

 

 

 

 

 

 

 

Revenues

 

264,082

241,221

533,966

485,846

 

Cost of revenues

 

218,992

199,948

446,055

404,145

 

Gross profit

 

45,090

41,273

87,911

81,701

 

 

 

 

 

 

 

 

Administrative and general expenses

 

16,290

14,184

31,590

28,812

 

Other

 

(253)

(3,750)

305

(1,492)

 

Income before interest and income taxes

 

29,053

30,839

56,016

54,381

 

 

 

 

 

 

 

 

Interest expense

 

1,291

1,070

2,359

2,148

 

Income before income taxes

 

27,762

29,769

53,657

52,233

 

 

 

 

 

 

 

 

Income taxes

 

 

 

 

 

 

Current

 

2,506

3,812

5,311

7,690

 

Deferred

 

3,540

2,493

6,221

3,615

 

 

 

6,046

6,305

11,532

11,305

 

Net income

 

21,716

23,464

42,125

40,928

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

Other comprehensive (loss) income that may be

 

 

 

 

 

 

reclassified to profit and loss in subsequent periods:

 

 

 

 

 

 

Foreign currency translation

 

(16,334)

(5,949)

(23,044)

15,033

 

Items not to be reclassified to profit and loss

 

 

 

 

 

 

in subsequent periods:

 

 

 

 

 

 

Actuarial (loss) gain on defined benefit pension plans,

net of taxes

(3,340)

2,559

(3,101)

1,914

 

Total comprehensive income, net of taxes

 

2,042

20,074

15,980

57,875

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

Basic and diluted

 

0.37

0.40

0.72

0.70

 

MAGELLAN AEROSPACE CORPORATION

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

 

 

 

 

 

 

 

(unaudited)

 

 

 

June 30

December 31

(expressed in thousands of Canadian dollars)

 

 

 

2019

2018

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

 

 

41,373

63,316

Trade and other receivables

 

 

 

200,499

187,897

Contract assets

 

 

 

83,560

66,436

Inventories

 

 

 

179,455

175,082

Prepaid expenses and other

 

 

 

22,904

20,058

 

 

 

 

527,791

512,789

Non-current assets

 

 

 

 

 

Property, plant and equipment

 

 

 

420,893

428,878

Right-of-use assets

 

 

 

22,292

Investment properties

 

 

 

2,187

2,305

Intangible assets

 

 

 

61,369

62,745

Goodwill

 

 

 

33,543

35,104

Other assets

 

 

 

16,841

19,666

Deferred tax assets

 

 

 

8,844

11,393

 

 

 

 

565,969

560,091

Total assets

 

 

 

1,093,760

1,072,880

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued liabilities and provisions

 

 

 

155,075

154,407

Debt due within one year

 

 

 

38,894

44,393

 

 

 

 

193,969

198,800

Non-current liabilities

 

 

 

 

 

Long-term debt

 

 

 

7,940

9,064

Lease liabilities

 

 

 

18,802

Borrowings subject to specific conditions

 

 

 

23,648

24,510

Other long-term liabilities and provisions

 

 

 

23,645

19,668

Deferred tax liabilities

 

 

 

31,401

33,165

 

 

 

 

105,436

86,407

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

 

 

 

254,440

254,440

Contributed surplus

 

 

 

2,044

2,044

Other paid in capital

 

 

 

13,565

13,565

Retained earnings

 

 

 

500,628

473,246

Accumulated other comprehensive income

 

 

 

21,334

44,378

Equity attributable to equity holder of the Corporation

 

 

 

792,011

787,673

Non-controlling interest

 

 

 

2,344

Total equity

 

 

 

794,355

787,673

Total liabilities and equity

 

 

 

1,093,760

1,072,880

 

MAGELLAN AEROSPACE CORPORATION

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(unaudited)

 

Three month period

ended June 30

Six month period

ended June 30

(expressed in thousands of Canadian dollars)

 

2019

2018

2019

2018

 

 

 

 

 

 

Cash flow from operating activities

 

 

 

 

 

Net income

 

21,716

23,464

42,125

40,928

Amortization/depreciation of intangible assets, right-of-use assets and property, plant and equipment

 

13,622

10,947

27,152

21,543

Loss (gain) on disposal of property, plant and equipment

 

38

24

(47)

112

Gain on disposal of joint venture investment

 

(881)

Increase (decrease) in defined benefit plans

 

287

136

133

(393)

Accretion

 

628

248

1,173

510

Deferred taxes

 

1,555

1,548

3,373

1,715

Income on investments in joint ventures

 

(111)

(122)

(281)

(238)

Changes to non-cash working capital

 

(12,061)

(19,071)

(38,975)

(55,598)

Net cash provided by operating activities

 

25,674

17,174

33,772

8,579

 

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

 

Business combination, net of cash acquired

 

(2,661)

Purchase of property, plant and equipment

 

(8,839)

(5,497)

(18,346)

(13,063)

Proceeds from disposal of property, plant and equipment

 

124

178

359

199

(Increase) decrease in intangible and other assets

 

(3,163)

2,831

(9,229)

2,077

Change in restricted cash

 

2,714

Net cash (used in) provided by investing activities

 

(11,878)

226

(29,877)

(10,787)

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

(Decrease) increase in bank indebtedness

 

(89)

(8,495)

(131)

6,951

(Decrease) increase in debt due within one year

 

(1,600)

1,211

(8,484)

(5,822)

Decrease in long-term debt

 

(802)

(608)

(1,449)

(13,874)

Lease liability payments

 

(783)

(1,684)

Decrease in long-term liabilities and provisions

 

(144)

(57)

(179)

(131)

(Decrease) increase in borrowings subject to specific conditions, net

 

(822)

1,285

(822)

1,310

Common share dividend

 

(5,821)

(4,948)

(11,642)

(9,896)

Net cash used in financing activities

 

(10,061)

(11,612)

(24,391)

(21,462)

 

 

 

 

 

 

Increase (decrease) in cash during the period

 

3,735

5,788

(20,496)

(23,670)

Cash at beginning of the period

 

38,463

12,080

63,316

40,394

Effect of exchange rate differences

 

(825)

(406)

(1,447)

738

Cash at end of the period

 

41,373

17,462

41,373

17,462

 

Contacts

Phillip C. Underwood
President & Chief Executive Officer
T: (905) 677-1889
E: phil.underwood@magellan.aero

Elena M. Milantoni
Chief Financial Officer
T: (905) 677-1889
E: elena.milantoni@magellan.aero

Contacts

Phillip C. Underwood
President & Chief Executive Officer
T: (905) 677-1889
E: phil.underwood@magellan.aero

Elena M. Milantoni
Chief Financial Officer
T: (905) 677-1889
E: elena.milantoni@magellan.aero