Good afternoon, ladies and gentlemen, and welcome to the Annual General Meeting of Magellan Aerospace Corporation. I am N. Murray Edwards. I'm glad they tell me that. And as chairman of Magellan Aerospace Corporation, I will be serving as chairman of this meeting. The meeting will now come to order. We will ask Elena M. Milantoni, corporate secretary of the corporation, to act as secretary of the meeting, and Josette Cuthbert, representative of Computershare, to act as scrutineer. In order to ensure the formal business officially today, we've asked certain employee shareholders to make and second motions. This is designed to facilitate the progression of the meeting and not intended to discourage conversations or comments. We have a forward-looking statement here to remind everybody that our remarks today will make statements about the information that are not historical factual information. This information may be considered forward-looking information.
Statements about forward-looking information are, by their very nature, not guarantees of Magellan's future operational or financial performance and are subject to risk and uncertainties. Actual results could differ materially from what is currently expected. Can I ask this to the lawyer or? Yeah, like lawyer, yeah, I know. Damn lawyer, sorry, lawyers. While Magellan believes its expectations are reasonable, they are based on risks and assumptions regarding a number of factors. Details regarding these assumptions and factors, as well as additional information about the material factors, risks, and assumptions that could cause our actual results to differ materially from what is currently expected, can be found on Magellan's website, which is available, or in Magellan's information form, which is available on www.SEDAR+. Magellan does not assume any obligation to update or revise any forward-looking information, except in accordance with applicable securities laws. Okay. Am I done that now?
Is it okay? It's good. Okay, thank you. We first have a couple of quick housekeeping points. The business matters for this meeting are, as set forward in the Notice of Meeting and Management Information Circular, both dated March 15, 2024. It was mailed, emailed, or otherwise made available to shareholders. Only shareholders as of the close of business on March 15, 2024, the record date, or their duly appointed proxy holders, are entitled to submit questions and vote at the meeting. After the formal meeting, at its conclusion, Mr. Phil Underwood, Magellan's President and Chief Executive Officer, will make a short presentation on the corporation's 2023 fiscal year and plans for the future. The next item is the Notice of Meeting.
We have received an affidavit from Computershare as the mailing of the notice of annual meeting, management information circular, and instrument of proxy to shareholders. We direct that this affidavit, together with the documents mailed to shareholders, be kept by the Secretary of the Corporation with the minutes of this meeting. Next item is the scrutineer report and the bylaws, confirming the meeting is regularly constituted for the transaction of business. Under the bylaws of the corporation, business may be transacted at this meeting if two persons are present at the meeting and they hold, their represented by proxy, not less than 10% of the total number of issued and outstanding shares of the corporation entitled to vote at the meeting. The scrutineer report has confirmed that a quorum is present. The scrutineer report shows there are 52... Let me just check this here.
52 shareholders and proxies present for the meeting, holding or represented by proxy 48,327,934 shares, or 84.5% of the shares, which are entitled to be voted present at this meeting. The scrutineer report will be kept with the secretary of the Corporation with the minutes of this meeting. Accordingly, as there are a quorum, a quorum of shareholders present, we now declare the meeting regularly constituted and properly constituted for the transaction of business. All voting today will be conducted by way of ballot. Voting on the resolution to appoint auditors will be conducted by a show of hands, unless the shareholder or proxyholder demands a ballot in respect to voting on such resolution. I'd like to thank those who have already voted prior to the meeting.
These votes will be tabulated, along with today's votes, and the scrutineer will provide us with a detailed breakdown of the votes after polling is closed. We'll also post the results on our website and on SEDAR+. The next item of business is the annual report, financial statements, and audit report. In this regard, we will table for receipt the 2023 consolidated financial statement of the Corporation, as included in the Corporation's 2023 annual report to shareholders for the fiscal year ended December 31, 2023, and the audit report thereon. A copy of the annual report has been made available to each registered shareholder in either hard copy or electronically. The financial statement of the corporation of fiscal year ended December 31, 2023, can also be found on the corporation website or at SEDAR+.
We now place before the meeting the consolidated financial statements and the audit report thereon for the fiscal year ended December 31, 2023. Any comments or questions on that? Our auditors are here if you have any questions for our auditors, gentlemen. Any questions you want? No. You don't want questions, right? That's good. You never want questions. Okay. The next item of business is the election of directors. The board has fixed the number of directors at the meeting at six. We will now entertain a motion for the directors of the corporation.
Mr. Chairman, my name is Karen Yoshiki-Gravelsins, and I am a shareholder. I nominate N. Murray Edwards, Phillip C. Underwood, Beth M. Bandler, Larry G. Moeller, Steven Somerville, James P. Veitch, as directors of the corporation to hold office until the next annual election of directors or until their successors are elected or appointed, subject to the provisions of the Business Corporations Act, Ontario, and the bylaws of the corporation.
Thank you, Karen. So what's your title with the company?
... Vice President of Corporate Stewardship and Operational Excellence.
Okay, and how are we doing?
Really well.
Are we? And so at the board meeting, Karen, you reported on a meeting you attended here in Mississauga recently with the community on best practice for environmental-
Yes.
sustainability and governance practices. Your thought of the meeting was: How does our corporation rank relative, not rank, but how do we relate to most of our peers in terms of our standards and what we've done on those matters?
I would say we're one of the leaders in the community.
Right.
In fact, we were asked to go on a panel to discuss how we, how our ESG journey started-
Right.
where we are.
I see this journey as applicable right across our operations around the world. We're AS9100, ISO certified. Exactly, what are we certified at our plants, Karen?
That's right. So, we have ISO 14001 at each facility-
Right.
across globally
Right.
all our divisions, and we are working on aligning ourselves with the health and safety standard, ISO 45001.
So, 1401, what does that mean, Karen?
It's an environmental management system. So it helps us to identify all applicable legislation, to put programs in place to make sure that we meet our objectives and, and not only compliance objectives, but to, to identify risks for the corporation and have plans in place to meet them.
So now, that's, those are good objectives from... How do you make money for us, Karen?
Okay. All right, good question. So, it's always been, Magellan's goal to, to be a sustainable business, to be profitable.
Mm-hmm.
What that means is to have operational excellence. We have objectives in place. We've had them in place for many years, to reduce our scrap, to reduce our rework, to make sure our machines operate efficiently, to make sure that our processes operate efficiently. When we do that, we use less water, we use less energy, and we generate less waste. All of those are sound environmental objectives.
So we're very lucky. She's very good, right? Okay. Thank you, Karen. Sorry, Karen. Do I have a seconder?
Mr. Chairman, my name is Michael Bryde, and I'm the shareholder, and I second the nomination.
Michael, what are you? What's your title, Michael?
I'm the Vice President of HR for Magellan.
Vice President, HR. And you've been with us now, Michael, for?
Two years.
Two years. And has it been okay journey? Has it been-
It's always a learning journey.
Is it dull?
It's never dull.
That's good.
It's never a dull moment in HR.
Thank you.
It's never a dull moment.
There we have a nomination. Is there any further nominations with regards to the corporation? As there are no further nominations, we now declare the nomination closed. To vote for or to withhold from voting for each nominee, you need to mark and sign a ballot and provide it to the Computershare representative. I already provided my ballot. Is there any other ballots out in the room? No other ballots in the room. Okay. As the ballots have all been collected, and I can confirm in the report provided by the scrutineers that each director of the corporation has been elected with a vote in excess of 95% of those provided for the meeting.
So I hereby declare that all those nominated as directors of the corporation, being Phil Underwood, Beth Bandler, Larry Moeller, Steve Somerville, and J.P. Veitch, and myself, be duly elected directors of the corporation until the next annual election of shareholders. The next item of business here is the appointment of auditors. Do I have a motion in this regard?
Yes. Chairman, I move to confirm BDO Canada Chartered Professional Accountants be appointed auditors of the corporation until the next annual meeting or until their successors are appointed, and that their remuneration as such are to be fixed by the board of directors.
But you're in HR. What do you know about accountants?
I'm a shareholder.
Okay, then you can... Thank you, Michael. Do we have a seconder?
I second the motion.
I won't ask you this time, Karen, I promise. Thank you. All in favor, signify by raising their right hand. Any opposed? Seeing none, carried. That brings us to the end of voting on items to be voted upon. As I stated earlier, we've been advised by the scrutineers that the ballots and proxies deposited with me are in favor of each of the resolutions. As such, each nominee is a director of the corporation, is duly elected as a director of the corporation, and BDO Canada, Chartered Professional Accountants, has been approved as the auditors of the corporation for the forthcoming year, and the board of directors has been authorized to fix the remuneration.
The directors and auditors of the corporation will hold their roles and positions until the next annual election or until the successors are elected, appointed, subject to the provisions of the Business Corporations Act, Ontario, and the bylaws of the corporation. We now direct that the scrutineers' report in respect to the voting, be kept with the minutes of the meeting. Unless there are any questions on the formal part of the meeting, I would entertain a motion, the meeting be terminated.
So moved.
Is there a second to the motion?
Second.
You guys are like a team here or there's...? All in favor, signify by raising their right hand. Any opposed? Carried. We now declare the meeting be terminated and now pass the meeting forward to Phil Underwood, who will provide a business update. Before I do that, quickly, I just would quite quickly like to say a few comments. First, I would like to thank the board of directors here. Both Phil and myself, we're considered non-independent directors, so we're very blessed. We have at the front row here four individuals who are very diligent. I know when we have meetings, they've read the material in advance, provide good comments, and do a good job. So at the front here, Steve Somerville, who is the chairman of our Audit Committee and our Pension Committee.
P. Veitch, who's chairman of our Governance and Nominating Committee. Beth M. Bandler, who's chairman of our Human Resources and-
Compensation.
Compensation Committee, and the environmental-
Health and safety.
Health Safety Committee, and then Larry Moeller, who's on the committee, but no chair. So thank you to you for your advice and support. It is appreciated, and we are making progress in an industry that's challenged. I think that COVID in 2020 was very hard on this sector, both in terms of the airline business and travel, and it rolled right back into our sector. We see there are some, I think, some green shoots of positivity coming out now. That being said, we are concerned right now about what's happening with Boeing. It's clearly gonna impact our business.
Boeing is one of our largest customers, and their what they're taking now is below our expectations in terms of deliveries, and we need to get some stability there to see where they are long-term, but we cannot predict that. The other thing I would like to also thank on behalf of the board is the management here. You met Karen and Phil, Karen and Michael, two of our leadership team. We also have our President and CEO, Phil Underwood; corporate secretary, Elena Milantoni; and Director of Marketing, Haydn Martin; and then our plant managers here, Don Boitson for North America, Jeff Kennelly from the U.K., and Jason Addis from India. So thank you all.
I appreciate all your efforts, and you have the privilege of or the burden of talking to me every second Tuesday, Phil, for our-
Thank you.
- our management meetings, Phil?
Yeah, I look forward to it.
You look forward to it, yes. I'm sure they do. With that, Phil, I'll turn it over to you before you get in trouble.
Thank you. Thank you, Larry. Well, good afternoon, everyone. So I will be presenting the financial and business highlights for 2023, and I will start with the financial summary. So consolidated revenues for the year ended December 31, 2023, were $ 879.6 million. That's a 15% increase from the $ 764.6 million achieved last year. The corporation's revenues increased by 10.5% in Canada, 23.3% in the United States, and 14.8% in Europe and India. These increases were mainly attributed to the build rate recoveries and the single aisle programs and casting revenues. So gross profit was $ 89 million for the year ended December 31, 2023, in comparison to gross profit of $ 35.1 million for the year ended December 31, 2022.
The increase in profitability is mainly the result of volume and rehabilitation of contracts on certain programs, favorable product mix, and production efficiencies, offset in part by supply chain disruptions and increases in purchases of materials. Adjusted EBITDA increased $ 37.4 million or 105.4% to $ 73 million for the year ended 2023, compared to $ 35.5 million in 2022, mainly as a result of the revenue and gross margin improvements. Magellan's investment in capital in 2023 was $ 19.2 million, which was approximately 2.2% of revenue. Magellan recognizes the importance of investment in capital and technology improvements, not only to increase productivity and cost savings, but to improve safety and lifespan.
So we recognize the importance of improving working capital, and with the significant revenue growth post-pandemic, our inventory has also grown significantly over that period. This has been influenced by a number of factors. Supply chain shortages have led to increased manufacturing lead times, especially for such items as forgings. And to protect on-time deliveries, customers are requiring increased buffer stocks and dual sourcing to minimize risks. This is a just, this is a shift from just-in-time to just-in-case inventory. We've also seen challenges in the supply chain, quality, performance and increased transportation lead times, which all contributed to increased inventory. So Magellan continues to work closely to manage these issues, to improve the use of our working capital. Contract assets will continue to be monitored closely, but have not really increased, significantly since pre-pandemic levels. Now, moving on to the business overview section.
Magellan is a global business with 19 divisions and over 3,850 employees worldwide. That chart shows where they all are. In this section, I will give an update on the commercial and military market. I'll start with the commercial market. Commercial air travel continued its recovery in 2023. The International Air Transport Association reported that industry-wide travel recovered to within 1% of 2019 levels by November, with domestic travel exceeding 2019 by 6.7% and international travel lagging by 5.5%. Strong demand for new commercial aircraft is driving record order books, order backlogs. Airbus set three new industry records in 2023. First, reaching an order backlog of 8,598 aircraft.
Second, procuring the highest gross orders of 2,319 aircraft in a year. And third, recording the highest net orders of 2,094 aircraft in the year. Boeing also set new company all-time record backlogs of 6,216 aircraft. Build rates are continuing to grow in order to fill this growing demand. Unfortunately, as mentioned, Boeing's numerous production and quality issues are causing significant concerns over the build rates, with ongoing delays negatively impacting the supply base. And the FAA is currently as, the 737 MAX rate capped at 38 per month, whereas Boeing had originally planned to ramp up to 50 aircraft per month by, through 2025 and 2026. Airbus's A320 build rate is currently at 56 per month, with 62 per month planned by the end of the year, and 75 per month by 2026.
A350 rates will reach 7 per month in 2024, and A330 goes from 3 per month to 4 per month. While Boeing's 777 remains at 3 per month, 787 is transitioning to 5 per month. So ignoring Boeing's current situation for a moment, both they and Airbus have a healthy aircraft order backlogs to fully to meet the demand going forward, and there's no doubt that the demand for commercial aircraft continues to grow. So moving to the defense market. The defense market is robust due to the rise in geopolitical tensions and a heightened urgency for defense readiness and fleet modernization. Although fiscal constraints are unavoidable, these dynamics are driving worldwide increases in defense budgets. Europe, for example, has seen the highest increase in military expenditure in 30 years.
In the United States, their 2024 defense budget is up 3.2% over 2023, which represents a total increase of 13.4% since 2022. Within this budget, there are $43 billion allocated to aircraft procurement, including a $3 billion boost on top of the original request. Notable programs receiving increased funding are Boeing's P-8 Maritime Patrol Aircraft, their CH-47 Chinook helicopter, Sikorsky's H-60 helicopter, Bell Boeing's V-22 Tiltrotor, and Lockheed C-130J Tactical Transport Aircraft. On the downside of this budget, the U.S. Air Force plans to purchase fewer Boeing F-15 fighters and slow the pace of Lockheed Martin's F-35 and Boeing's T-7A trainer acquisitions. These funds are being redirected towards sixth generation fighter development and associated autonomous combat fighters. So Lockheed delivered just 98 of their F-35 aircraft in 2023, as compared to the 153 planned.
This was primarily due to the U.S. DoD delay, delaying delivery acceptance of further aircraft until late, the latest TR-3 configuration is approved. Despite this, Lockheed continues to maintain a higher build rate. Positive news was received recently when the U.S. Navy announced additional new orders for the F/A-18E/F fighter, which would extend Boeing's production into 2027. Previously, production was ending in 2025. Defense manufacturers are expected to build 3,400 new fighter aircraft between 2024 and 2022 across all programs. Meanwhile, legacy helicopter programs are expected to remain consistently strong through the same period. In all, it's a positive outlook for the defense market. Now I'd like to talk about a few key announcements that we made during 2023.
So on March the sixth, 2023, Magellan announced the signing of a significant long-term agreement extension with Collins to manufacture complex magnesium and aluminum castings for various military and commercial aerospace programs. The castings will be produced by Magellan's facility in Haley, Ontario, and Glendale, Arizona. In addition, F-15, 16, and F-18 castings for Collins legacy programs were in the agreement, and it also includes the supply of castings to the F-35, KC-46, A320neo, 787, and 777X programs. So on March the tenth, 2023, Magellan announced a contract with the government of Canada to design, build, launch, and operate the Redwing microsatellite. Directed by Defence Research and Development Canada, the $ 15.8 million Redwing contract represents the next generation of spacecraft technology for space domain awareness technology demonstration, which launched in 2026.
Redwing will perform space object tracking to characterize an increasingly congested orbital environment, observe higher detail on space objects, and provide near real-time tasking to respond to evolving space events. Right. On May the thirteenth, 2023, Magellan announced the signing of a contract extension with Boeing, providing the continued manufacture of large and complex nacelle exhaust systems for the Boeing 767 program. The fabricated metallic assemblies will be produced and delivered from Magellan's facility in Middletown, Ohio. The continuation of this agreement with Boeing will ensure the continued supply by Magellan of acoustic plug and nozzle exhaust assemblies for the Boeing 767 program. Magellan's metallic honeycomb is manufactured utilizing materials suitable for high temperatures, and offers advantages in weight savings and acoustic attenuation.
On December the nineteenth, 2023, Magellan announced an agreement with the Canadian government for the provision of LUU-2 illumination flares for the Royal Canadian Air Force. The $ 39 million, 4-year contract involves the manufacture, assembly, delivery of LUU-2 flares from Magellan's Winnipeg propellant plant in Manitoba, Canada. On February 28th , 2024, Magellan announced an agreement between Magellan Aerospace U.K. Limited and Airbus, to continue to supply major structural wing components for Airbus's Single Aisle family of aircraft. The high-strength, lightweight components will be delivered from Magellan's leading-edge, long bed machining facility in our Wrexham facility from January 2024. The agreement focuses on the production of wing spars for use on the A320 family of aircraft, and these are components that provide support and strength for the wing structure. Okay, so moving on. Continuing with the business overview.
These charts show the revenue by customer and market segments in 2023. On the left, you can see that 36% of our revenues is directly with Airbus and Boeing combined, which is down on 2019 levels of 40%. 2023 revenues for Boeing continue to be affected by the challenges that the company faces surrounding quality and supplier deliveries. On the top right, you can see our businesses split of our business. Aerostructures, 55% of our business is in Aerostructures. 24% Aero Engines, which include repair and overhaul, 13% Castings, and 8% is Specialty Products.
On the bottom right, you can see that our business is 60%—63% of our revenue is derived from commercial business, and our defense business is 37%, which has decreased from prior years due to the increase in the commercial build rates. So, strategic summary. So in this section, I want to discuss the challenges and opportunities as we recover from the pandemic. So Magellan has been faced with a number of challenges over the past year, which in turn, have presented us with a number of opportunities. The impacts of hyperinflation have been severe, with rising utility costs, record CPI levels, and demanding workforce expectations. We are addressing these unusual levels of inflation through rehabilitation of customer contracts, and working towards realistic labor agreements.
Underutilization is significant, with revenue down from pre-pandemic levels, resulting in high levels of under absorption and idle plant and equipment. However, this has allowed us to continue restructuring of our business and consolidation of our products to underutilized factories and facilities, and to lower cost facilities. When we look at our product mix, higher Single Aisle programs and lower long range programs reflect lower margins. In addition, the business has also been impacted by limited new platforms and the 737 MAX delays. It's encouraging that long range programs are now recovering, and the 787 is back in production, and Magellan is also continuing to address legacy contracts and rehabilitations. We're also targeting programs to diversify our product mix. So the disruption in the supply chain has caused shortfalls in forgings and raw materials.
Failing suppliers are also impacting our performance and necessitating dual sourcing to protect customers, who have also increased their buffer stock demands. As a result of this disruption, numerous products are now dual sourced, and we are now focusing on reliable strategic suppliers. We have managed to reduce customer claims, and we have more agility in our supply chain management. Workforce engagement is vital to our business. Over the past year, we've made significant investment in training and development. Our global leadership development training program has been launched, and we are piloting accelerated training and development with over 15,000 courses online. Also, a company-wide engagement survey is again scheduled for this year. A number of union negotiations were concluded in 2023, but some have resulted in protracted negotiations into 2024. On the next slide, I'll be discussing our high-level strategy.
So Magellan will continue to position itself as a global and key supplier for our customers. In order to achieve this, the corporation will continue to develop its people, technical expertise, and add value to our products to enable growth in selected markets. We will maintain a solid balance sheet through inventory and working capital management to support our business goals. We will leverage our technology and engineering capabilities, and continue to assess our facilities and products to further exploit our low-cost footprint, thereby improving our financial performance and competitiveness. Examples are the implementation of the SAP system, introduction of automated kitting in Winnipeg, site consolidations in the U.K., and continued movement of work to our low-cost sources in Poland and India.
Continued improvement in our quality through our Zero Defects program, which has been deployed across all our sites, and continued to drive 100% delivery performance utilizing our Magellan Operating System. We want to inspire, develop, and invest in our people and drive success. Over the last year, we've directed resources towards employee engagement. We've also seen participation grow in our continuous improvement incentives program, which has been enabling employees to better address the root causes of issues and share improvement ideas and successes across the corporation. Each ESG expectations include growing concerns about climate change, as well as an increase in the level of mandatory disclosures on all ESG matters. To meet this challenge, Magellan will continue to provide information critical to our sustainability efforts and monitor evolving climate-related risks and expectations of all our shareholders.
Magellan continues to uphold environmental, social, and governance principles in the conducting our business. Our greenhouse gas reduction, water conservation, and waste reduction programs are well-established and continue to track our progress. This past year, we launched our corporate sustainability policy, which is posted on the Magellan ESG website. We successfully completed certification of all our sites, as we mentioned, to ISO 14001 standard on environmental management systems, and we're on track for implementing, as Karen said, ISO 45001, which is the health and safety standard. We're closely monitoring the evolving ESG disclosure standards and global reporting framework to ensure continued compliance. Our focus on operational excellence continues to be aligned with these ESG principles.
Under environmental, we are decreasing our demand on energy and water, generating less waste, and lowering our carbon footprint through operational efficiency improvements. Under social, we take measures to engage and train our employees and create a safe workplace to lower employee turnover and improve our ability to deliver quality products on time. And finally, under governance, our policies ensure we operate with integrity, accountability, and transparency. So in summary, so revenue has rebounded a healthy $ 115 million or 15% growth year-on-year, contributed to a $ 40 million improvement in profit. Our strong balance sheet has allowed us to weather the inflationary pressure and supply chains disruptions the industry experienced in 2022. We are fostering a principle of right first time, and have made progress with our zero defects program across all our sites.
We've renewed significant contracts with major customers and secured new work packages, and made significant progress in rehabilitating contracts that have been adversely affected by hyperinflation. We've launched our employee engagement program with a survey that results in a number of initiatives that the company has or is in the process of implementing. We've established our ESG framework and achieved ISO 14001 certification across all sites. And a key priority is returning the business to previous levels of revenue and profitability through cost containment, good supply management, and pricing initiatives. Also, to improve our working capital ratio through inventory reduction initiatives. So we need to be well-positioned to meet our customers' needs with robust operational plans and continued focus on operational excellence, utilizing Magellan's Operating System.
As part of the engagement program, a follow-on survey will be carried out in 2024, and we will continue to monitor evolving ESG standards and reporting requirements to strengthen our path to sustainability. So that concludes the presentation. So I'd like to take this opportunity to thank all our stakeholders, customers, and employees for their continued support and commitment to Magellan.