Firan Technology Group Corporation (“FTG” or “Corporation”) Announces Second Quarter 2018 Financial Results

TORONTO, July 11, 2018 (GLOBE NEWSWIRE) -- Firan Technology Group Corporation (TSX:FTG) today announced financial results for the second quarter of 2018.

• Achieved record sales of $28.9M, an increase of 13% over Q2 2017
• Grew Aerospace segment by 42% over Q2 last year
• Gross margins increased by $1.5M or 26% over Q2 last year
• Generated cash flow from operations of $3.6M compared to cash usage of $0.4M in Q2 2017

“The second quarter of 2018 began to demonstrate the earnings benefits from our acquisitions in 2016,” stated Brad Bourne, President and Chief Executive Officer. He added, “While we continued to experience some increased costs in the quarter related to the transition, we also achieved a dramatic improvement in our net earnings and cash flow.”

Second Quarter: (three-months ended June 1, 2018 compared with three-months ended June 2, 2017)
	Q2 2018			Q2 2017
Sales	$28,878,000			$25,513,000
Gross margin		7,242,000			5,753,000
Gross margin (%)		25.1%			22.5%
Operating earnings (1):		3,579,000			2,581,000
•  Net R&D investment		1,071,000			1,846,000
•  Recovery of investment tax credits		(211,000	)		(188,000	)
•  Amortization of intangibles		261,000			286,000
•  Foreign exchange (gain) loss		(104,000	)		(118,000	)
•  Restructuring expense		195,000			-
Earnings before income taxes		2,367,000			755,000
•  Current income tax (recovery) expense		22,000			(41,000	)
•  Deferred income tax expense		1,039,000			691,000
•  Non-controlling interests		11,000			(19,000	)
Net earnings, attributable to the equity holders of FTG	$1,295,000			$124,000
Earnings per share, attributable to the equity holders of FTG
Basic	$0.06			$0.01
Diluted	$0.05			$0.01

Year-to-Date: (six-months ended June 1, 2018 compared with six-months ended June 2, 2017)
	YTD 2018			YTD 2017
Sales	$56,406,000			$52,685,000
Gross margin		12,089,000			12,639,000
Gross margin (%)		21.4%			24.0%
Operating earnings (1):		5,140,000			5,598,000
•  Net R&D investment		2,221,000			3,256,000
•  Recovery of investment tax credits		(363,000	)		(329,000	)
•  Amortization of intangibles		517,000			567,000
•  Foreign exchange (gain) loss		(130,000	)		43,000
•  Restructuring expense		195,000			-
Earnings before income taxes		2,700,000			2,061,000
•  Current income tax (recovery) expense		40,000			(24,000	)
•  Deferred income tax expense		1,675,000			1,179,000
•  Non-controlling interests		(17,000	)		(18,000	)
Net earnings, attributable to the equity holders of FTG	$1,002,000			$924,000
Earnings per share, attributable to the equity holders of FTG
Basic	$0.04			$0.04
Diluted	$0.04			$0.04

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 the second quarter of 2018 that continue to improve the Corporation and position it for the future, including:

• Completed C-130 contract with CAE on schedule and on cost
• Renewed contract with Rockwell Collins for Printed Circuit Boards from North American and China facilities
• Won new cursor control device assembly for use on Airbus aircraft already in service
• Achieved sales resulting from the PhotoEtch acquisition of $1.5M in the quarter compared to $2.9M in the second quarter of last year and a target of $1.5M. The PhotoEtch related revenues will ramp up significantly in the second half of 2018 as shipments begin on the KC-46 simulator assembly contract.
• Achieved sales resulting from the Teledyne PCT acquisition of $5.0M in the quarter compared to $5.0M in the second quarter of last year and a target of $4.0M

For FTG, overall sales increased by $3.4M or 13.2% from $25.5M in Q2 2017 to $28.9M in Q2 2018. This increase was experienced by the Aerospace segment and was driven by the shipment of the majority of the C-130 program for CAE from the Aerospace Toronto facility and a ramp up of activity in the Aerospace Chatsworth facility. Offsetting these gains, was the impact of changes in the foreign exchange rates (the Canadian dollar was 6 cents stronger in Q2 this year which translated into a reduction in sales of approximately $1M).

For the year-to-date period, sales were up $3.7M or 7.1% due to the items noted above and the one-time revenue recognition of $5.0M from the C919 program with SAVIC in the first quarter of this year.

Sales in the Circuits segment were down $0.4M or 2.3% comparing Q2 2018 versus Q2 2017. On a year-to-date basis, Circuits segment sales were down by $1.7M or 5.3%.

For the Aerospace segment, sales in Q2 2018 were $12.7M compared to $8.9M in the same quarter last year resulting in a 41.8% growth rate. Included in the Q2 2018 results are $1.5M in sales from the acquisition of PhotoEtch and approximately $4.5M of Teledyne PCT incremental sales. Year-to-date sales were up $5.4M or 26.1% in the Aerospace segment.

Gross margins in Q2 2018 were up $1.5M or 25.9% compared to Q2 2017. The benefit of increased sales and the cost savings of closing the Teledyne PCT facility was partially offset by some transition related costs.

Earnings before interest, tax, depreciation and amortization (EBITDA) for FTG for Q2 2018 was $3.4M and $8.4M for the trailing twelve months.

The following table reconciles EBITDA⁽²⁾  to the net earnings for Q2 2018 and trailing twelve months.

	Q2 2018	Trailing Twelve Months
Net earnings	$1,295,000	1,347,000
Add:
•  Interest	132,000	517,000
•  Income taxes/ITC	850,000	2,159,000
•  Depreciation/Amortization	1,144,000	4,385,000
EBITDA	$3,421,000	$8,408,000

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 earnings at FTG in Q2 2018 were $1.3M compared to a net profit of $0.1M in Q2 2017. Q2 2018 had higher sales and the elimination of the Teledyne PCT facility costs as well as reductions in R&D spending.  These improvements were partially offset by some restructuring costs this year.

The Circuits segment net earnings before corporate and interest and other costs was $2.8M in Q2 2018 compared to $2.6M in Q2 2017. The Circuits joint venture in China was profitable in Q2 of this year.

The Aerospace segment’s net earnings before corporate and interest and other costs was $0.1M versus ($1.0M) in Q2 2017. Q2 2017 included operating and transitional costs for the Teledyne PCT facility which was closed during that quarter. FTG Aerospace Tianjin was profitable in Q2 of this year.

As at June 1, 2018, the Corporation’s net working capital was $27.8M, an increase of $3.4M over 2017 year end. Higher accounts receivables and net bank debt was offset by higher customer deposits.

The Corporation will host a live conference call on Thursday, July 12, 2018 at 8:30 am (EDT) to discuss the results of Q2 2018.

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 July 26, 2018 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, pass code 3678495.

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 CEO	Tel: (416) 299-4000 x314
Firan Technology Group Corporation	bradbourne@ftgcorp.com
Melinda Diebel, Vice President and CFO	Tel:(416) 299-4000 x264
Firan Technology Group Corporation	melindadiebel@ftgcorp.com

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

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Balance Sheets
(Unaudited)				June 01,		November 30,
(in thousands of Canadian dollars)				2018		2017
ASSETS
Current assets
Cash				$	3,797	$	2,752
Accounts receivable					19,942		17,983
Taxes receivable					319		209
Inventories					25,216		25,079
Prepaid expenses					936		1,506
					50,210		47,529
Non-current assets
Plant and equipment, net					11,986		12,222
Deferred income tax assets					394		395
Investment tax credits receivable					5,285		6,420
Deferred development costs					269		681
Intangible assets and other assets, net					3,454		3,768
Total assets				$	71,598	$	71,015
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness				$	3,889	$	6,444
Accounts payable and accrued liabilities					13,135		13,341
Provisions					414		390
Customer deposits					3,074		1,268
Current portion of long-term bank debt					1,921		1,726
					22,433		23,169
Non-current liabilities
Long-term bank debt					6,283		6,040
Deferred tax payable					1,769		1,696
Total liabilities					30,485		30,905
Equity
Retained earnings				$	9,814	$	8,812
Accumulated other comprehensive income					2		187
					9,816		8,999
Share capital
Common shares					19,312		19,295
Preferred shares					2,218		2,218
Contributed surplus					8,527		8,384
Total equity attributable to FTG's shareholders					39,873		38,896
Non-controlling interest					1,240		1,214
Total equity					41,113		40,110
Total liabilities and equity				$	71,598	$	71,015

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Earnings
		Three months ended									Six months ended
(Unaudited)		June 01,				June 02,					June 01,				June 02,
(in thousands of Canadian dollars, except per share amounts)		2018				2017					2018				2017
Sales		$	28,878			$	25,513				$	56,406			$	52,685
Cost of sales
Cost of sales			20,864				18,937					42,838				38,655
Depreciation of plant and equipment			772				823					1,479				1,391
Total cost of sales			21,636				19,760					44,317				40,046
Gross margin			7,242				5,753					12,089				12,639
Expenses
Selling, general and administrative			3,496				3,008					6,601				6,722
Research and development costs			1,126				1,886					2,331				3,366
Recovery of research and development costs			(55	)			(40	)				(110	)			(110	)
Recovery of investment tax credits			(211	)			(188	)				(363	)			(329	)
Depreciation of plant and equipment			35				34					65				66
Amortization of intangible assets			261				286					517				567
Interest expense on short-term debt			67				71					153				128
Interest expense on long-term debt			65				59					130				125
Foreign exchange (gain) loss			(104	)			(118	)				(130	)			43
Restructuring expenses			195				-					195				-
Total expenses			4,875				4,998					9,389				10,578
Earnings before income taxes			2,367				755					2,700				2,061
Current income tax expense			22				(41	)				40				(24	)
Deferred income tax expense			1,039				691					1,675				1,179
Total income tax expense			1,061				650					1,715				1,155
Net earnings		$	1,306			$	105				$	985			$	906
Attributable to:
Non-controlling interest		$	11			$	(19	)			$	(17	)		$	(18	)
Equity holders of FTG		$	1,295			$	124					1,002				924
Earnings per share, attributable to the equity holders of FTG
Basic		$	0.06			$	0.01				$	0.04			$	0.04
Diluted		$	0.05			$	0.01				$	0.04			$	0.04

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income
		Three months ended								Six months ended
(Unaudited)		June 01,				June 02,				June 01,				June 02,
(in thousands of Canadian dollars)		2018				2017				2018				2017
Net earnings		$	1,306			$	105			$	985			$	906
Other comprehensive income (loss) to be reclassified to net earnings
in subsequent periods:
Foreign currency translation adjustments			68				300				(44	)			813
Net unrealized (loss) on derivative financial instruments
designated as cash flow hedges			(367	)			(226	)			(131	)			(1,144	)
Tax impact			92				57				33				286
			(207	)			131				(142	)			(45	)
Total comprehensive income		$	1,099			$	236			$	843			$	861
Attributable to:
Equity holders of FTG		$	1,095			$	202			$	817			$	847
Non-controlling interest		$	4			$	34			$	26			$	14

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Changes in Equity
Six months ended June 01, 2018					Attributed to the equity holders of FTG
										Accumulated
										Other						Non-
(Unaudited)	Common		Preferred		Retained		Contributed			Comprehensive						controlling			Total
(in thousands of Canadian dollars)	Shares		Shares		Earnings		Surplus			Income (Loss)			Total			interest			equity
Balance, November 30, 2017	$	19,295	$	2,218	$	8,812	$	8,384		$	187		$	38,896		$	1,214		$	40,110
Net earnings		-		-		1,002		-			-			1,002			(17	)		985
Stock-based compensation		-		-		-		148			-			148			-			148
Common shares issued on exercise of
share options and PSU's		17		-		-		(5	)		-			12			-			12
Foreign currency translation adjustments		-		-		-		-			(87	)		(87	)		43			(44	)
Net unrealized (loss) on derivative financial
instruments designated as cash flow hedges,
net of tax impact		-		-		-		-			(98	)		(98	)		-			(98	)
Balance, June 01, 2018	$	19,312	$	2,218	$	9,814	$	8,527		$	2		$	39,873		$	1,240		$	41,113
Six months ended June 02, 2017					Attributed to the equity holders of FTG
										Accumulated
										Other						Non-
	Common		Preferred		Retained		Contributed			Comprehensive						controlling			Total
(in thousands of Canadian dollars)	Shares		Shares		Earnings		Surplus			Income (Loss)			Total			interest			equity
Balance, November 30, 2016	$	19,051	$	2,218	$	7,543	$	8,381		$	443		$	37,636		$	443		$	38,079
Net earnings		-		-		924		-			-			924			(18	)		906
Stock-based compensation		-		-		-		24			-			24			-			24
Common shares issued on exercise of
share options and PSU's		148		-		-		(142	)		-			6			-			6
Foreign currency translation adjustments		-		-		-		-			781			781			32			813
Net unrealized (loss) on derivative financial
instruments designated as cash flow hedges
net of tax impact		-		-		-		-			(858	)		(858	)		-			(858	)
Contribution from non-controlling interest		-		-		-		-			-			-			824			824
Balance, June 02, 2017	$	19,199	$	2,218	$	8,467	$	8,263		$	366		$	38,513		$	1,281		$	39,794

FIRAN TECHNOLOGY GROUP CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
				Three months ended								Six months ended
(Unaudited)				June 01,				June 02,				June 01,				June 02,
(in thousands of Canadian dollars)				2018				2017				2018				2017
Net inflow (outflow) of cash related to the following:
Operating activities
Net earnings				$	1,306			$	105			$	985			$	906
Items not affecting cash:
Non-controlling interest share of net loss (earnings)					(11	)			19				17				18
Stock-based compensation					74				24				148				24
(Gain) on disposal of plant and equipment					-				(15	)			-				(18	)
Effect of exchange rates on US dollar debt					68				84				70				65
Depreciation of plant and equipment					806				857				1,543				1,457
Amortization of intangible assets					261				286				517				567
Amortization of deferred financing costs					3				3				6				6
Deferred income tax expense					947				633				1,572				1,111
Investment tax credits (recovery)					(211	)			(188	)			(363	)			(329	)
Decrease in net unrealized gain on derivative
financial instruments designated as cash flow
hedges					(229	)			(170	)			(264	)			(201	)
Net change in non-cash operating working capital					1,031				594				(22	)			400
					4,045				2,232				4,209				4,006
Investing activities
Additions to plant and equipment					(414	)			(2,594	)			(1,206	)			(3,487	)
Recovery (additions) of deferred development costs, other					(67	)			(19	)			221				116
Proceeds from disposal of plant and equipment					-				15				-				18
					(481	)			(2,598	)			(985	)			(3,353	)
Net cash flow from operating and investing activities					3,564				(366	)			3,224				653
Financing activities
(Decrease) increase in bank indebtedness					(1,912	)			1,399				(2,555	)			(231	)
Proceeds from long-term bank debt					-				-				1,289				-
Repayments of long-term bank debt					(491	)			(395	)			(927	)			(782	)
Funding from non-controlling interest					-				-				-				824
Proceeds from issue of Common shares					-				3				12				6
					(2,403	)			1,007				(2,181	)			(183	)
Effects of foreign exchange rate changes on cash flow					(3	)			194				2				14
Net increase in cash flow					1,158				835				1,045				484
Cash, beginning of the period					2,639				2,801				2,752				3,152
Cash, end of period				$	3,797			$	3,636				3,797			$	3,636
Disclosure of cash payments
Payment for interest				$	144			$	130			$	300			$	259
Payments for income taxes				$	6			$	-			$	13			$	4