Firan Technology Group Corporation ("FTG" or "the Corporation") Announces First Quarter 2019 Financial Results

Firan Technology Group Corporation (TSX: FTG) today announced financial results for the first quarter 2019.

• Achieved sales of $25.4M, a 13% increase over Q1 2018 after excluding $5M of one-time revenue adjustment on a development contract from Q1 last year
• Achieved record sales from the FTG Aerospace Tianjin facility, up 68% over Q1 2018
• Achieved Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $3.2M in Q1 2019, an increase of $1.7M or 122% over last year
• Achieved trailing twelve month EBITDA of $12.3M
• Achieved net income of $1.2M and diluted earnings per share of $0.05 in Q1 2019, a $1.5M increase over Q1 2018
• Achieved bookings of $24.3M in the quarter.
• Subsequent to the end of Q1 2019, FTG announced it had entered into a definitive purchase agreement to acquire a US based printed circuit board manufacturer, subject to approval of the Committee on Foreign Investment in the United States (CFIUS) and other customary closing conditions.

“The first quarter of 2019 was the fourth quarter in a row with strong operating results.  Our first quarter is typically a seasonally slower quarter with lower profitability as it includes the Christmas period and Chinese Spring Festival but this year showed improved performance across the Corporation,” stated Brad Bourne, President and Chief Executive Officer. He added, “As announced after the quarter, we are excited about our pending acquisition which will add needed capacity for standard circuit board manufacturing freeing up capacity in existing sites for higher end product and expand our offering for the US defense market.”

First Quarter Results: (three months ended March 1, 2019 compared with three months ended March 2, 2018)

		Q1 2019			Q1 2018
Sales	$	25,390,000		$	27,528,000
Gross Margin		6,754,000			4,847,000
Gross Margin (%)		26.6	%		17.6	%
Operating Earnings (1):		3,318,000			1,561,000
• Net R&D Investment		1,061,000			1,150,000
• Foreign Exchange Loss (Gain)		156,000			(26,000	)
• Recovery of Investment Tax Credits		(150,000	)		(152,000	)
• Amortization of Intangibles		271,000			256,000
Net Earnings before Tax		1,980,000			333,000
• Tax Expense		807,000			654,000
• Non-controlling Interests		(45,000	)		(28,000	)
Net Earnings (Loss) After Tax	$	1,218,000		$	(293,000	)
Earnings (Loss) per share
- basic	$	0.05		$	(0.01	)
- diluted	$	0.05		$	(0.01	)

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 Q1 2019 that continue to improve the Corporation and position it for the future, including:

• Achieved record sales from the FTG Aerospace Tianjin facility, up 68% over Q1 2018
• Developed new Power over Ethernet (POE) interface solution for simulator products
• Received Canadian Technical Standard Order (TSO) approval for a Cursor Control Device enabling FTG to begin production of this product under development over the past 3 years
• Subsequent to the end of Q1, FTG announced it has entered into a definitive agreement to acquire a US based circuit board manufacturer – to add capacity in the Circuits business and to enable FTG to offer standard circuit board product to US based defense contractors.  The acquisition is conditional upon approval of the Committee on Foreign Investment in the United States (CFIUS) and other customary closing conditions.

For FTG, overall sales decreased by $2.1M or 7.8% from $27.5M in Q1 2018 to $25.4M in Q1 2019.  Q1 2018 had a one-time $5M revenue adjustment for the development program for the C919 aircraft in China.  Excluding this, the first quarter 2019 was up $2.8M or 13%.  Against the adjusted baseline, both the Circuits and Aerospace segments contributed to the growth. The Canadian dollar was 7 cents weaker in Q1 2019 compared to the same quarter last year and this contributed approximately $1.5M to the growth.

The Circuits Segment sales in Q1 2019 were $15.2M, up $1.1M or 7.6% versus Q1 2018, of which Circuits Toronto was up while Circuits Chatsworth was down.  Activity in China was approximately $1M and is reported in the Circuits Toronto sales as all orders flow through the Toronto site.

For the Aerospace segment, sales in Q1 2019 were $10.2M compared to $13.4M in Q1 of last year, or $8.4M in Q1 last year excluding the one-time development program revenue adjustment.  Excluding this amount, sales were up $1.8M or 21.1%.  All three Aerospace sites were up year-over-year against the adjusted Q1 2018 sales.

Gross margins of $6.8M in Q1 2019 were up $1.9M compared to Q1 2018.  In Q1 2019, the gross margin was 26.6% compared to 17.6% in Q1 2018 (or about 20.2% in Q1 2018 excluding the $5M one-time revenue and $0.3M one-time margin). 

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) for FTG in Q1 2019 was $3.2M compared to $1.4M in Q1 2018.  Trailing twelve month EBITDA is $12.3M.

The following table reconciles EBITDA(2)  to the net earnings for the trailing 12 months as at Mar 1, 2019.

	Trailing 12 Months
Net earnings		4,359,000
Add:
Interest		447,000
Income taxes/ITC/JV		2,801,000
Depreciation/Amortization		4,655,000
EBITDA	$	12,262,000

2. EBITDA 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 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 Q1 2019 was $1.2M compared to a net loss of $0.3M in Q1 2018.  Higher margins, lower R&D spending and lower interest costs were offset by higher SG&A costs and higher foreign exchange losses.  Five of FTG’s six sites had improved profitability while the FTG Printronics JV in China was flat.

The Circuits segment net earnings before corporate and interest and other costs was $2.2M in Q1 2019 compared to $0.8M in Q1 2018.

The Aerospace net earnings before corporate and interest and other costs in Q1 2019 was $0.5M versus $0.0M in Q1 2018. Q1 2018 had approximately $0.3M benefit from the one-time revenue adjustment noted above.

As at March 1, 2019, the Corporation’s net working capital was $30.4M, an increase of $1.7M over year-end 2018.  Higher inventories and lower accounts payable/accrued liabilities were offset by lower cash, lower accounts receivables and higher bank indebtedness. 

Cashflow in Q1 2019 was ($1.9M) compared to ($0.3M) in Q1 last year, after investments in capital equipment and contract costs.  In Q1 2019, cash incentive compensation payments were $1.0M and cash taxes paid were $0.7M.  The incentive compensation payments were higher in 2019 due to improved performance.  The cash tax payments are the result of being taxable in Ontario and represent a one-time catch up payment of $0.6M for 2018 and installment payments for Q1 2019.

Net debt to EBITDA was 0.35:1 for the trailing 12 month period.

The Corporation will host a live conference call on Thursday, April 11, 2019 at 8:30 am (EDT) to discuss the results of Q1 2019.

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 May 11, 2019 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 7866427.

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 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 CEOFiran Technology Group CorporationTel: [phone] [e-mail]

Melinda Diebel, Vice President and CFOFiran Technology Group CorporationTel:[phone] [e-mail]

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

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Balance Sheets
(Unaudited)	March 1,			November 30,
(in thousands of Canadian dollars)	2019			2018
ASSETS
Current assets
Cash	$	3,626		$	5,026
Accounts receivable		17,436			18,051
Contract assets		131			645
Taxes receivable		244			189
Inventories		26,487			24,634
Prepaid expenses		1,763			1,816
		49,687			50,361
Non-current assets
Plant and equipment, net		11,649			12,078
Deferred income tax assets		732			732
Investment tax credits receivable		4,304			4,620
Contract costs		280			276
Intangible assets and other assets, net		2,806			3,069
Total assets	$	69,458		$	71,136
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness	$	995		$	-
Accounts payable and accrued liabilities		13,998			16,278
Provisions		782			849
Contract liabilities		1,384			1,966
Current portion of long-term bank debt		2,017			2,019
Income tax payable		123			563
		19,299			21,675
Non-current liabilities
Long-term bank debt		4,886			5,404
Deferred tax payable		1,781			1,750
Total liabilities		25,966			28,829
Equity
Retained earnings	$	12,905		$	11,687
Accumulated other comprehensive (loss)		(876	)		(774	)
		12,029			10,913
Share capital
Common shares		19,323			19,323
Preferred shares		2,218			2,218
Contributed surplus		8,746			8,672
Total equity attributable to FTG's shareholders		42,316			41,126
Non-controlling interest		1,176			1,181
Total equity		43,492			42,307
Total liabilities and equity	$	69,458		$	71,136

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings (Loss)
	Three months ended
(Unaudited)	March 1,				March 2,
(in thousands of Canadian dollars, except per share amounts)	2019				2018
Sales	$	25,390			$	27,528
Cost of sales
Cost of sales		17,808				21,974
Depreciation of plant and equipment		828				707
Total cost of sales		18,636				22,681
Gross margin		6,754				4,847
Expenses
Selling, general and administrative		3,316				3,105
Research and development costs		1,116				1,205
Recovery of research and development costs		(55	)			(55	)
Recovery of investment tax credits		(150	)			(152	)
Depreciation of plant and equipment		43				30
Amortization of intangible assets		271				256
Interest expense on short-term debt		3				86
Interest expense on long-term debt		74				65
Foreign exchange loss (gain)		156				(26	)
Total expenses		4,774				4,514
Earnings before income taxes		1,980				333
Current income tax expense		777				625
Deferred income tax expense		30				29
Total income tax expense		807				654
Net earnings (loss)	$	1,173			$	(321	)
Attributable to:
Non-controlling interest	$	(45	)		$	(28	)
Equity holders of FTG	$	1,218			$	(293	)
Earnings (loss) per share, attributable to the equity holders of FTG
Basic	$	0.05			$	(0.01	)
Diluted	$	0.05			$	(0.01	)

 

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income (Loss)
	Three months ended
(Unaudited)	March 1,				March 2,
(in thousands of Canadian dollars)	2019				2018
Net earnings (loss)	$	1,173			$	(321	)
Other comprehensive income (loss) to be reclassified to net earnings in subsequent periods:
Foreign currency translation adjustments		1,181				(112	)
Net unrealized (loss) gain on derivative financial instruments designated as cash flow hedges		(1,658	)			236
Tax impact		415				(59	)
		(62	)			65
Total comprehensive income (loss)	$	1,111			$	(256	)
Attributable to:
Equity holders of FTG	$	1,116			$	(278	)
Non-controlling interest	$	(5	)		$	22

 

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
Three months ended March 1, 2019					Attributed to the equity holders of FTG
(Unaudited)(in thousands of Canadian dollars)	CommonShares		PreferredShares		RetainedEarnings			ContributedSurplus			AccumulatedOtherComprehensiveIncome (Loss)			Total			Non-controllinginterest			Totalequity
Balance, November 30, 2018	$	19,323	$	2,218	$	11,687		$	8,672		$	(774	)	$	41,126		$	1,181		$	42,307
Net earnings (loss)		-		-		1,218			-			-			1,218			(45	)		1,173
Stock-based compensation		-		-		-			74			-			74			-			74
Common shares issued on exercise of share options and PSU's		-		-		-			-			-			-			-			-
Foreign currency translation adjustments		-		-		-			-			1,141			1,141			40			1,181
Net unrealized (loss) gain on derivative financial instruments designated as cash flow hedges, net of tax impact		-		-		-			-			(1,243	)		(1,243	)		-			(1,243	)
Balance, March 1, 2019	$	19,323	$	2,218	$	12,905		$	8,746		$	(876	)	$	42,316		$	1,176		$	43,492
Three months ended March 02, 2018					Attributed to the equity holders of FTG
(Unaudited)(in thousands of Canadian dollars)	CommonShares		PreferredShares		RetainedEarnings			ContributedSurplus			AccumulatedOtherComprehensiveIncome (Loss)			Total			Non-controllinginterest			Totalequity
Balance, November 30, 2017	$	19,295	$	2,218	$	8,812		$	8,384		$	187		$	38,896		$	1,214		$	40,110
Net (loss)		-		-		(293	)		-			-			(293	)		(28	)		(321	)
Stock-based compensation		-		-		-			74			-			74			-			74
Common shares issued on exercise of share options and PSU's		17		-		-			(5	)		-			12			-			12
Foreign currency translation adjustments		-		-		-			-			(163	)		(163	)		51			(112	)
Net unrealized gain (loss) on derivative financial instruments designated as cash flow hedges, net of tax impact		-		-		-			-			177			177			-			177
Balance, March 2, 2018	$	19,312	$	2,218	$	8,519		$	8,453		$	201		$	38,703		$	1,237		$	39,940

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
	Three months ended
(Unaudited)	March 1,				March 2,
(in thousands of Canadian dollars)	2019				2018
Net inflow (outflow) of cash related to the following:
Operating activities
Net earnings (loss)	$	1,173			$	(321	)
Items not affecting cash:
Non-controlling interest share of net loss		45				28
Stock-based compensation		74				74
Loss on disposal of plant and equipment		7				-
Effect of exchange rates on US dollar debt		(14	)			2
Depreciation of plant and equipment		871				737
Amortization of intangible assets		271				256
Amortization of deferred financing costs		3				3
Current/deferred income tax expense		496				625
Investment tax credits (recovery)		(150	)			(152	)
(Increase) in net unrealized loss, decrease in net unrealized gain on derivative financial instruments designated as cash flow hedges		(220	)			(35	)
Net change in non-cash operating working capital		(4,087	)			(1,053	)
		(1,531	)			164
Investing activities
Additions to plant and equipment		(391	)			(792	)
Additions to contract costs, other		(18	)			288
		(409	)			(504	)
Net cash flow used by operating and investing activities		(1,940	)			(340	)
Financing activities
Increase (decrease) in bank indebtedness		995				(643	)
Proceeds from long-term bank debt		-				1,289
Repayments of long-term bank debt		(509	)			(436	)
Proceeds from issue of Common shares		-				12
		486				222
Effects of foreign exchange rate changes on cash flow		54				5
Net (decrease) in cash flow		(1,400	)			(113	)
Cash, beginning of the period		5,026				2,752
Cash, end of period	$	3,626			$	2,639
Disclosure of cash payments
Payment for interest	$	81			$	156
Payments for income taxes	$	738			$	7