Results for the third quarter ended October 31, 2011

FINANCIAL HIGHLIGHTS:

All results are disclosed in accordance with International Financial Reporting Standards (“IFRS”).

Revenues amounted to $11.2 million, an 18% decrease compared with those for the same quarter of the previous fiscal year.
ADF Group closed the third quarter with net earnings of $0.4 million or $0.01 per share (basic and diluted).
Because of its profitability, the Corporation recorded an increase in the surplus of available short-term liquidities over total debt, which now stands at $18.6 million.

TERREBONNE, QC, Dec. 8, 2011 /CNW Telbec/ – ADF GROUP INC. (“ADF” or the “Corporation”) (TSX: DRX) closed the third quarter of the 2012 fiscal year with revenues of $11.2 million, compared with $13.7 million for the same quarter last year. Besides the weak economy, this decline is attributable for the most part to a different mix of revenues billed, notably in terms of fabrication hours and the supply of raw material and other.

The gross profit margin as a percentage of revenues declined from 20% in the third quarter of fiscal 2011 to 15% in the third quarter of fiscal 2012. This decline is explained by the start of fabrication on new lower-margin contracts consistent with its action plan implemented at the beginning of the current fiscal year, the short-term objective of which being to increase the order backlog. To a certain extent, the gross margin was also affected by the recognition of a portion of the costs associated with contractual changes and adjustments in connection with mandates in progress, whereas the related revenues should be recognized at a later date. The revenues and profits derives from these contractual changes should be recognized in the coming months.

For the third quarter ended October 31, 2011, the Corporation posted net earnings of $0.4 million or $0.01 per share (basic and diluted), compared with $0.9 million or $0.03 per share (basic and diluted) for the third quarter of the previous year.

For the nine-month period ended October 31, 2011, ADF Group recorded year-to-date revenues of $37.6 million, compared with $40.3 million for the same period of fiscal 2011. Additionally to the reasons previously outlined, this decline is also attributable to the 5% increase in the Canadian dollar in relation to the U.S. dollars between the two reporting periods. However, the gross margin only slightly decreased, from 24% of revenues to 21% of revenues.

For the nine-month period, net earnings totalled $2.3 million or $0.07 per share (basic and diluted), compared with $3.7 million or $0.11 per share (basic and diluted) for the same period last year. In addition to the factors listed above, this decline is partly attributable to the non-recurrence of certain favourable items recognized a year ago, and the realization of lower foreign exchange gains than last year.

The Corporation’s operating activities provided cash flows of $7.9 million during the first nine months of the current fiscal year, compared with $6.6 million for the same period last year. Cash flows from operating activities contributed to further strengthen the financial health of the Corporation which, as of October 31, 2011, had working capital of $43.2 million, including short-term available liquidities (cash, cash equivalents and short-term investments) of $25.4 million. Therefore, available liquidities exceeded ADF Group’s total debt by $18.6 million.

Major Events Since October 31, 2011

Over the last few weeks, ADF Group and the various parties involved in the World Trade Center (“WTC”) projects, in New York, U.S.A., have reached an agreement to expedite the contractual changes review process and the collection of debts. The Corporation had previously availed itself of measures available under the different contracts.

In addition, the Corporation is announcing the postponement of its development project in Western Canada after ADF’s minimum requirements were refused by the both provincial and municipal bodies. It must be noted that ADF Group Inc. was actively negotiating for the past 18 months with the Province of Manitoba and the City of Winnipeg to purchase an industrial lot in order to build a new fabrication plant of 9,290 m2 (100,000 ft2). This acquisition was conditional to the conclusion of a due diligence, including notably an environmental remediation, satisfactory to ADF Group Inc. and its partner. Consistent with its responsible management, the Corporation decided to end these negotiations and analyze other options to increase its coverage of the Western Canada markets.

Outlook

As at October 31, 2011, ADF Group’s order backlog stood at $49 million, the execution schedule of which should extend until the third quarter of the Corporation’s 2013 fiscal year.

“In response to a particularly challenging economic environment in our targeted markets, especially in the United States, we are maintaining our focus on preserving the Corporation’s operating profitability and the soundness of its balance sheet. Our large-scale contracts currently in progress in connection with the reconstruction of the WTC site in New York City (U.S.A.) will remain a source of profitability for ADF Group in the coming months,” indicated Jean Paschini, Chairman of the Board and Chief Executive Officer.

In the short-term, the Corporation is especially banking on the Canadian market, where the economic outlook is brighter, to build its order backlog,

About ADF Group Inc.

ADF Group Inc. is a North American leader in the design and engineering of connections, fabrication and installation of complex steel structures, heavy steel built-ups, as well as miscellaneous and architectural metals for the non-residential construction industry. ADF is one of the few players in the industry capable of handling highly technically complex mega projects on fast-track schedules in the commercial, institutional, industrial and public sectors.

Forward-Looking Information

This press release contains forward-looking statements reflecting ADF objectives and expectations. These statements are identified by the use of verbs such as “expect” as well as by the use of future or conditional tenses. By their very nature these types of statements involve risks and uncertainty. Consequently, reality may differ from ADF’s expectations.

Transition to International Financial Reporting Standards (IFRS)

All financial information, including comparative figures pertaining to ADF Group’s 2011 results, has been prepared in accordance with IFRS. In previous periods, the Corporation prepared its consolidated financial statements and interim financial statements in accordance with Canadian generally accepted accounting principles (“Previous GAAP”), in effect prior to February 1, 2011. Comparative figures presented pertaining to ADF’s results have been restated to be in accordance with IFRS. A reconciliation of net income, gross margin and EBITDA reported under the previous GAAP and the IFRS is provided in the table below:

                   
2011 Fiscal Year Annual   Q4   Q3   Q2   Q1
  12-month
period ended
  3-month periods ended
  01.31.2011   01.31.2011   10.31.2010   07.31.2010   04.30.2010
(In thousands of $) $   $   $   $   $
Net Income                  
  Previous GAAP 3,743   1,037   630   878   1,198
    Impact of IFRS standards, after income taxes:                  
    – Exchange differences on translation of foreign operations 1,623   639   308   (70)   746
    – Share-based compensation 51   4   (28)   31   44
    – Amortization of property, plant and equipment and intangible assets (26)   (6)   (7)   (6)   (7)
  1,648   637   273   (45)   783
IFRS 5,391   1,674   903   833   1,981

 

                   
2011 Fiscal Year Annual   Q4   Q3   Q2   Q1
12-month
period ended
  3-month periods ended
  01.31.2011   01.31.2011   10.31.2010   07.31.2010   04.30.2010
(In thousands of $) $   $   $   $   $
Gross Margin                  
  Previous GAAP 17,072   5,146   3,495   3,850   4,581
    Impact of IFRS standards:                  
  – Reclassification of amortization of property,
plant and equipment and intangible assets
(2,936)   (735)   (739)   (782)   (680)
  IFRS 14,136   4,411   2,756   3,068   3,901
Gross Margin (as a % of revenues)                  
  Previous GAAP 31%   34%   26%   30%   34%
  IFRS 26%   29%   20%   24%   29%
EBITDA1                  
  Previous GAAP 10,871   3,122   2,069   2,525   3,155
    Impact of IFRS standards:                  
  – Share-based compensation 51   4   (28)   31   44
  IFRS 10,922   3,126   2,041   2,556   3,199

Non-IFRS Measures

EBITDA is not a performance measure recognized by IFRS standards, and is not likely to be comparable to similar measures presented by other issuers. Management, as well as investors, consider this to be useful information to assist them in assessing the Corporation’s profitability and ability to generate funds to finance its operations.

All amounts are in Canadian dollars, unless otherwise indicated.

CONFERENCE CALL WITH INVESTORS

TO DISCUSS ADF GROUP’S RESULTS
FOR THE THIRD QUARTER ENDED OCTOBER 31, 2011

Thursday December 8, 2011 at 2:00 p.m. (Montreal Time)

To participate in the conference call, please dial 1-800-732-1073 a few minutes before the start of the call.

For those unable to participate, a taped rebroadcast will be available from December 8, 2011 at 5:00 p.m.
until midnight December 15, 2011, by dialing 1-877-289-8525; access code 4491508#.

The conference call (audio) will also be available at www.adfgroup.com

Members of the media are invited to listen in.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
  3 Months   9 Months
Periods Ended October 31, 2011   2010   2011   2010
(In thousands of CA$, except for per-share amounts) $   $   $   $
               
Revenues 11,208   13,687   37,555   40,295
Cost of goods sold 9,480   10,931   29,598   30,570
Gross margin 1,728   2,756   7,957   9,725
Selling and administrative expenses 1,567   1,565   4,906   4,463
Financial revenues (36)   (79)   (244)   (261)
Finance charges 60   103   179   299
Foreign exchange gain (330)   (822)   (1,068)   (1,817)
  1,261   767   3,773   2,684
Income before income tax expense 467   1,989   4,184   7,041
Income tax expense 64   1,086   1,926   3,324
Net income for the period 403   903   2,258   3,717
Earnings per share              
  Basic and diluted per share 0,01   0,03   0,07   0,11
Average number of outstanding shares (in thousands) 32,792   32,997   32,785   33,936
Average number of outstanding diluted shares (in thousands) 33,259   33,598   33,347   34,631
               
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
               
  3 Months   9 Months
Periods Ended October 31,   2011   2010   2011   2010
(In thousands of CA$)   $   $   $   $
               
Net income for the period 403   903   2,258   3,717
Other comprehensive income              
  Exchange differences on translation of foreign operations,
net of hedging activities and related income taxes of $31
1,106   (310)   (160)   (983)
Comprehensive income for the period 1,509   593   2,098   2,734

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

                   
  Capital
stock
  Contributed
surplus
  Accumulated
other
comprehensive
income
  Retained
income
  Total
(In thousands of CA$) $   $   $   $   $
                   
Balance, February 1, 2010 75,436   3,659   144   13,348   92,587
Net income for the period       3,717   3,717
Other comprehensive income for the period     (983)     (983)
Comprehensive income for the period     (983)   3,717   2,734
Share-base compensation   172       172
Options exercised 260   (92)       168
Subordinate voting share redemption (5,681)   1,945       (3,736)
Balance, October 31, 2010 70,015   5,684   (839)   17,065   91,925
                   
                   
  Capital
stock
  Contributed
surplus
  Accumulated
other
comprehensive
income
  Retained
income
  Total
(In thousands of CA$) $   $   $   $   $
                   
Balance, February 1, 2011 70,032   5,740   (1,477)   18,739   93,034
Net income for the period       2,258   2,258
Other comprehensive income for the period     (160)     (160)
Comprehensive income for the period     (160)   2,258   2,098
Share-base compensation   92       92
Options exercised 20   (7)       13
Dividends       (656)   (656)
Balance, October 31, 2011 70,052   5,825   (1,637)   20,341   94,581
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
       
AS AT October 31, 2011   January 31, 2011
(In thousands of CA$) $   $
       
ASSETS      
Current assets      
  Cash and cash equivalents 19,832   18,677
  Short-term investments 5,558   2,787
  Accounts receivable 21,885   22,215
  Holdbacks on contracts 4,946   167
  Work in progress 1,241   403
  Inventories 3,668   3,865
  Prepaid expenses and other current assets 1,313   985
  Derivative financial instruments 47   741
  Total current assets 58,490   49,840
Non-current assets      
  Holdbacks on contracts   3,562
  Property, plant and equipment 45,774   46,871
  Intangible assets 2,581   2,601
  Other non-current assets 2,866   2,852
  Deferred income tax assets 4,790   6,960
Total assets 114,501   112,686
LIABILITIES      
Current liabilities      
  Accounts payable and other current liabilities 8,051   5,365
  Income tax liabilities 98   159
  Deferred revenues 4,582   4,994
  Derivative financial instruments 98   45
  Current portion of long-term debt 2,511   2,513
  Total current liabilities 15,340   13,076
Non-current liabilities      
  Long-term debt 4,294   6,151
  Deferred income tax liabilities 286   425
Total liabilities 19,920   19,652
SHAREHOLDERS’ EQUITY      
  Retained income 20,341   18,739
  Accumulated other comprehensive income (1,637)   (1,477)
  18,704   17,262
  Capital stock 70,052   70,032
  Contributed surplus 5,825   5,740
  Total shareholders’ equity 94,581   93,034
Total liabilities and shareholders’ equity 114,501   112,686
       
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
               
  3 Months   9 Months
Periods Ended October 31, 2011   2010   2011   2010
(In thousands of CA$) $   $   $   $
               
OPERATING ACTIVITIES              
  Net income 403   903   2,258   3,717
  Non-cash items:              
    Amortization of property, plant and equipment 758   764   2,312   2,283
    Amortization of intangible assets 90   86   268   251
    Gain (loss) on disposal of property, plant and equipment 10     10   (52)
    Unrealized gain (loss) on derivative financial instruments 116   (127)   747   195
    Non-cash exchange loss (gain) 882   (57)   482   (415)
    Share-based compensation 21   59   92   172
    Income tax expense 64   1,086   1,926   3,324
    Financial revenues (36)   (79)   (244)   (261)
  Finance charges 60   103   179   299
  Net income adjusted for non-cash items 2,368   2,738   8,030   9,513
  Changes in non-cash working capital items 1 (3,569)   4,092   62   (2,483)
  Income tax expense received (paid)   (202)   (174)   (393)
Cash flows from (used in) operating activities (1,201)   6,628   7,918   6,637
               
INVESTING ACTIVITIES              
  Disposal (acquisition) of short-term investments 22   (50)   (2,906)   3,884
  Acquisition of property, plant and equipment (495)   (111)   (1,133)   (2,264)
  Acquisition of intangible assets (85)   (60)   (248)   (260)
  Reduction in other non-current assets (16)   (10)   (15)   (6)
  Interest received 22   66   232   224
Cash flows from (used in) investing activities (552)   (165)   (4,070)   1,578
               
FINANCING ACTIVITIES              
  Issuance of long-term debt       4,370
  Repayment of long-term debt (610)   (625)   (1,829)   (1,692)
  Issuance of subordinate voting shares   4   13   168
  Redemption of subordinate voting shares   (950)     (3,736)
  Dividends paid (328)     (656)  
  Interest paid on the interest rate swap (9)   (24)   (26)   (24)
  Interest paid (49)   (74)   (151)   (195)
Cash flows from (used in) financing activities (996)   (1,669)   (2,649)   (1,109)
Impact of fluctuations in foreign exchange rate on cash 378   (42)   (44)   (164)
Net (decrease) increase in cash and cash equivalents (2,371)   4,752   1,155   6,942
Cash and cash equivalents, beginning of period 22,203   7,960   18,677   5,770
Cash and cash equivalents, end of period 19,832   12,712   19,832   12,712
1. The following table sets out in detail the components of the “Changes in non-cash working capital items”:
  3 Months   9 Months
Periods ended October 31, 2011 2010   2011 2010
(In thousands of CA$) $ $   $ $
           
  Accounts receivable (7,822) 1,373   (469) (9,725)
  Holdbacks on contracts (384) (889)   (1,415) 285
  Income tax (130) 90   (2) 424
  Work in progress 195 417   (881) 1,092
  Inventories 110 105   197 (481)
  Prepaid expenses and other current assets (15) (655)   (331) (1,130)
  Accounts payable and other current liabilities 1,917 (962)   3,184 890
  Deferred revenues 2,560 4,613   (221) 6,162
Changes in non-cash working capital items (3,569) 4,092   62 (2,483)
           
Financing and investing activities without impact on cash were as follows:
           
  3 Months   9 Months
Periods ended October 31, 2011 2010   2011 2010
(In thousands of CA$) $ $   $ $
           
Disposal of property, plant and equipment in exchange for new ones 39   39 139
Capital-lease 37   37
Changes in non-cash working capital items 76   76 139
           
For the purpose of the Consolidated Statements of Cash Flows, cash and cash equivalents are disclosed as follows:
         
As at October 31, 2011   January 31, 2011
(In thousands of CA$) $   $
       
Cash 19,832   15,918
Cash equivalents – term deposits   2,759
  19,832   18,677

Segmented Information

The Corporation operates in the non-residential construction sector, primarily in the United States and Canada. Its operations include the connections design and engineering, fabrication and installation of complex steel structures, heavy steel built-ups, as well as miscellaneous and architectural metalwork.

  3 Months   9 Months
Periods ended October 31, 2011   2010   2011   2010
(In thousands of CA$)   $   $   $   $
               
Revenues              
  Canada 2,360   4   2,835   567
  United States 8,848   13,683   34,720   39,728
  11,208   13,687   37,555   40,295
               
       
As at   October 31, 2011   January 31, 2011
(In thousands of CA$) $   $
       
Property, Plant and Equipment      
  Canada 45,092   46,767
  United States 682   104
  45,774   46,871

All intangible assets and investment tax credits included under “Other non-current assets” at, January 31, 2011 and October 31, 2011, originated from Canada.

During the nine-month period ended October 31, 2011, one client accounted for 89% of the Corporation’s revenues (one client accounted for 89% of the revenues during the nine-month period ended October 31, 2010), and therefore accounted for more than 10% of revenues.

 

 

 

Source:   ADF Group Inc.
Contact:   Jean Paschini, Chairman of the Board of Directors and Chief Executive Officer
Jean-François Boursier, CA, Chief Financial Officer
Telephone:   (450) 965-1911 / 1 (800) 263-7560
Web Site:   www.adfgroup.com