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Edited Transcript of DRX.TO earnings conference call or presentation 13-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Full Year 2016 Adf Group Inc Earnings Call

TERREBONNE Apr 29, 2017 (Thomson StreetEvents) -- Edited Transcript of Adf Group Inc earnings conference call or presentation Thursday, April 13, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jean Paschini

ADF Group Inc. - Co-Chairman and CEO

* Jean-François Boursier

ADF Group Inc. - CFO

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Conference Call Participants

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* Alan W. Weber

Robotti & Company, Incorporated - Portfolio Manager

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Presentation

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Operator [1]

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Good morning. My name is Sophie and I will be your conference operator today. At this time I would like to welcome everyone to the ADF Group fourth quarter and 12 months ended January 31, 2017, results conference call. (Operator Instructions) Thank you.

Jean Paschini, CEO of ADF, you may begin your conference.

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Jean Paschini, ADF Group Inc. - Co-Chairman and CEO [2]

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Thank you. Good morning, ladies and gentlemen. Welcome to ADF's conference call covering the 3- and 12-month period ended January 31, 2017.

With me this morning is Jean-Francois Boursier, our CFO, who will update you on ADF's last result and change in financial position, which were disclosed earlier this morning by press release. I will then update you on our operation.

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Jean-François Boursier, ADF Group Inc. - CFO [3]

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Thank you, Jean. Good day, everyone.

Please note that some of the issues discussed today may include forward-looking statements. These are documented in ADF Group's management report for the fiscal year 2017, which will be filed with SEDAR in the coming days.

Revenues for the fiscal year ended January 31, 2017, stood at CAD 102.8 million compared with CAD 98.1 million last year. The increase in revenues stems mainly from higher fabrication levels throughout the corporation's operational units.

Gross margin as a percentage of sales increased from 14.3% last year to 16.7% for the 12 months ended January 31, 2017. This increase is mainly explained by the higher activity level and a better absorption of costs in line with the higher fabrication volume.

Both revenues and gross margin for fiscal 2017 were positively impacted by the yearly exchange rate variations.

In line with the gross margin improvement, EBITDA stood at CAD 8.5 million, or 8.2% of revenues, compared with CAD 7.2 million, or 7.4% of revenues, a year ago. The full positive impact of the gross margin in dollars did not entirely trickle down to the EBITDA since ADF's selling and administrative expenses were CAD 2 million higher year over year.

The increase in SG&A expense is explained by the award of deferred share units to our external directors and executive officers back in February of 2016, by the increase in bid activity and by our business development efforts.

Year-to-date the net income stood at CAD 1.5 million, or CAD 0.05 basic and diluted per share, compared with a net income of CAD 1.7 million a year ago, or CAD 0.05 basic and diluted per share.

Looking specifically at the fourth quarter ended last January 31, revenues stood at CAD 36.5 million compared with CAD 29.1 million for the corresponding quarter a year ago, whereas the gross margin as a percentage of sales at 13% was 1% lower than for the quarter ended January 31, 2016.

Finally, the net income for the quarter ended January 31, 2017 stood at CAD 0.3 million compared with a net income of CAD 1.1 million for the same period a year ago.

It is worth mentioning that the fiscal 2016 fourth quarter results benefited from a CAD 618,000 gain following the disposal of property, plant and equipment in Florida. This sale followed the purchase of a separate site, still in Florida, which is better suited for our construction and installation team based in Pompano Beach.

Although our liquidities are under pressure, overall our balance sheet remains healthy. Working capital stood at CAD 24.8 million for a ratio of 1.77:1.

We invested CAD 7.2 million in capital expenditures during fiscal 2017, the most part for our new industrial coating facility in Terrebonne, Quebec.

As I've mentioned, our liquidities are impacted by the start of major new project, most notably the Salt Lake City Airport project in the State of Utah. The early phase of this project requires significant cash flows for the purchase of raw material. We have prepared for these special points and have negotiated increased credit facilities to absorb these financing requirements.

As of January 31, 2017, we have drawn in excess of CAD 13 million from our credit facilities. We have started the fabrication phase of this project and, along with our other projects, we will see cash inflows in the coming months.

Considering the above, ADF remains well positioned financially to pursue and grow its business and maintain its dividend policy. To that effect, our board of directors approved yesterday the payment on May 16, 2017, of a CAD 0.01 per share semiannual dividend to shareholders of record as of April 28, 2017.

Our order backlog stood at CAD 194.5 million as of January 31, 2017.

Ladies and gentlemen, thank you for your attention. I will now turn the call to Jean.

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Jean Paschini, ADF Group Inc. - Co-Chairman and CEO [4]

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Thank you, Jean-Francois.

Our revenue net profit during fiscal 2017 stayed at about the same level as last year. These result were achieved under market condition that have yet to show significant sign of improvement, not mentioning the challenge of working is a low selling price environment in our industry.

All the more reason we continue finding ways to continuously improve efficiency in all our facilities, from reviving work method to making even a better use of consumables, for example, which are all element of our ADF 2.0 strategic plan platform.

Exactly a year ago we said we will continue working very hard to lock in more contracts. And that's exactly what we achieved.

During fiscal 2017 we secured CAD 235 million in new work in Canada and US. And with that we more than doubled our fiscal 2016 [hit] ratio when we locked and closed CAD 200 million in new contracts. The largest contract we landed during fiscal 2017 is the one at the Salt Lake City International Airport for which, as Jean-Francois just mentioned, fabrication activity are just started in our Great Falls plant.

And so our order backlog hit the CAD 200 million mark for fiscal 2017, which is a new level since our fiscal year 2003. We are pleased with the recent growth of our backlog, which include major contract that will provide work until about the second half of our fiscal year ending January 2019.

Now we are focusing our effort on adding more work in our facility for this year and beyond. Actually, we are well positioned to win new contracts in the coming months. We begun fiscal 2018 with close to CAD 195 million of backlog. We are confident that we will continue growing our backlog and also know the importance of maintaining a rigorous management approach and that the discipline which we have approach and carry out major project will remain a key factor to our success.

As previously mentioned, major key investment were made in the last few years, including a fabrication plant and a paint shop in Great Falls and more recently a new paint shop in Terrebonne. To benefit from these investment we need to make sure they perform to full capacity. And this comes from an increase of backlog.

These activity level are the first step for increasing revenue. As we fabricate more volume, our facility will improve their efficiency and our financial performance will follow.

Ladies and gentlemen, thank you for your interest and confidence in ADF Group. I would like to remind you that ADF will hold a shareholder meeting on June 14 at the Sheraton Hotel in Laval.

Jean-Francois and I will now answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Alan Weber of Robotti & Company.

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Alan W. Weber, Robotti & Company, Incorporated - Portfolio Manager [2]

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I might have missed your comment, but can you talk about in the fourth quarter, I think you said revenues were up and earnings [and like that] were down. Just kind of what took place in the fourth quarter, if you can remind me?

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Jean-François Boursier, ADF Group Inc. - CFO [3]

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Yes. The revenues for -- let me just get back to the numbers. For the fourth quarter the revenues were at CAD 36.5 million compared to CAD 29.1 million. Gross margin was slightly lower as a percentage of sales. And the net results were CAD 1.1 million last year and only CAD 0.3 million this year. But, as I mentioned, we had a sort of outstanding profit coming from the sale of a facility in Florida that boosts our net profit from last year's, which explains a chunk of the net revenue variance.

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Alan W. Weber, Robotti & Company, Incorporated - Portfolio Manager [4]

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And what was the gain last year on the sale?

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Jean-François Boursier, ADF Group Inc. - CFO [5]

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The what?

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Alan W. Weber, Robotti & Company, Incorporated - Portfolio Manager [6]

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Did you say there was a gain on the sale of the property in Florida last year?

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Jean-François Boursier, ADF Group Inc. - CFO [7]

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Yes, slightly over CAD 600,000.

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Alan W. Weber, Robotti & Company, Incorporated - Portfolio Manager [8]

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Okay. And even without that, earnings would have been down a little bit. I'm just curious why, given higher revenues.

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Jean-François Boursier, ADF Group Inc. - CFO [9]

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Well, as I said, lower margin, SG&A expenses slightly higher. And the tax rate -- because of the mix of revenues in the quarter, the tax rate was higher also in the fourth quarter of this year compared to last year.

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Operator [10]

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There are no further questions at this time. I will turn the call back over to the presenters.

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Jean Paschini, ADF Group Inc. - Co-Chairman and CEO [11]

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Again I wish to thank you for your interest in ADF Group. We will remain available to answer your question. Thank you and have a good day.

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Operator [12]

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This concludes today's conference call. You may now disconnect.