ADF Group $DRX.TO AGM and Facility Visit

June 12th, 2024

*** This is my own interpretation and my own opinions, it should be treated anecdotal and could not be accurate, material or express the views of the company. Nothing here should be considered investment advice and the information could change at any time.

I went to the ADF Group AGM $DRX.TO on Tuesday June 11th in Laval with 2 other shareholders and also had the opportunity to visit their Facility in Terrebonne in the afternoon. They offered it to anyone present at the AGM. We were a group of 5 shareholders at the visit.

Annual General Meeting:

There were maybe 30-40 people present at the AG<, mostly the board Members, a lot of ADF Group employees, 1 journalist, 1 photographer and a few shareholders…There were no analysts present…only one bank was there to offer debt to the company…

Mr. Boursier, the CFO, said looking at everyone with a little smile after presenting the results of the quarter….’’in short ... .a good quarter’’.

Execution and increasing the backlog is a priority at this stage for the company.

Some clarification on the accounts receivable of $121.7M as of Apr 30th as they collected $90M cash since Apr 30th. They are very prudent and conservative with their cash from their approach just by the way they talk during the whole AGM imo.

The buyback of shares from the founder members is for estate planning, diversification of their holdings and in my opinion timed with the new Capital Gain Tax in Canada. I think it's a win-win for the founders and shareholders reducing the O/S.

We talked with the CFO and asked a few questions mainly about the margins, capacity, backlog and the competitive landscape.

The dynamic of the industry changed in the fact that a lot of Private Equity firms who bought steel manufacturer and just compete on price and could be late and often have excess costs.

ADF Group is winning contracts part because can also deliver IN TIME which is critical for a lot of their current and prospective customers. Think about the last pharmaceutical contract. They are also the only players that has a robotized facility which is improving efficiency. They are also involved a lot more in the design portion (more on this later).

They can easily reach a higher capacity without any additional investment.

Overall, you can feel they put a high emphasis on their employees, their facilities and you can tell they take pride in the projects they do for their customers.

Visit of the Terrebonne Facility

Photo source: https://www.lapresse.ca/affaires/entreprises/2024-06-12/marches/adf-continue-d-epater.php

We were greeted by Jean Paschini the CEO and Chairman and then a Production Supervisor did the tour and answered our questions.

Obviously everyone is excited about the robotization of the facility but there is also a good portion of the facility floor production which had already been fully automated for years. It is pretty impressive to see the robots in action.

You would think the robotization would only replace people, but no, approximately 30 people were re affected to increase additional capacity. The speed and efficiency is probably 60-100% higher than the manual labour. The Production Supervisor explained to us they have 2 shifts currently and could run up to 130 people if needed at full capicity. The facility was not running at full capacity.

ADF Group are now more involved in the design process of some projects versus just getting plans in the past and bidding on them. The fact that are involved in the design helps them to robotised more of the production than versus getting a plan from a prospective customer. It is difficult to put a number but I would estimate 50% of the projects they would be involved in the design from my discussion.

Raw Steel before being assembled never comes in perfect shape, length, etc… Talking with an Operator ‘’We are making perfection with imperfection’’. ADF Group is not just manufacturing steel, they are artists at heart. You can feel the pride of the employees, board and management and just how it feels like a big family.

Disclosure: I am long shares of ADF Group $DRX.TO

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