ADF Group's New Tariff Whammy: 10% on the Commercial Invoice, Steel from U.S. Mills or Not

ADF Group (DRX.TO) closed fiscal 2026 on April 16, 2026 with a report that was, by management's own admission, “exceptional” – yet the market's attention is already on the next headwind. Revenues fell to $258.7M from $339.6M, and gross margin compressed from 31.6% to 23.1%, a direct consequence of U.S. tariffs that added raw material costs and delayed project starts. But the company's strategic repositioning – the Groupe LAR acquisition and a deliberate shift toward Canadian content – has left it far better insulated than a year ago. As CFO Jean-François Boursier put it: “we can now confirm that for the time being, our U.S. projects fabricated in Terrebonne will now be impacted by a 10% tariff, which is applied on the value of the commercial invoice, including profit. And this in spite that the steel used to fabricate these projects comes from U.S. mills.” — Jean-François Boursier, Chief Financial Officer · 2026-04-16

The Pivot That Paid Off

Twelve months ago, ADF was staring at an uncertain future with 85% of Terrebonne fabrication heading to the U.S. The acquisition of Groupe LAR, finalized in September 2025, and the July 2025 new contracts (a multi-year hydroelectric master contract, among others) have fundamentally reshaped the backlog. Order backlog now stands at $561.1M, excluding the $157.3M announced the week before the call, with $138.2M coming from LAR alone. The company's own keyword trajectory for Q1 2026 is dominated by LAR acquisition and tariff change – a reflection of how these two forces now drive the narrative. Boursier explained the rationale on the December call: “the goal is really not to exit the U.S. market... we're definitely the idea is to have a better balanced backlog, which we achieved, but not shifting the U.S. volumes, to Canadian volume, it's just increasing.” — Jean-François Boursier, CFO · 2025-12-11 The pivot is tangible: 57% of current work is now Canadian, versus 90% U.S. at the start of last year.

The 10% Tariff: A New Wrinkle

The company had thought it had shielded itself by sourcing steel from U.S. mills, but the new tariff regime applies to the full commercial invoice value – including profit – regardless of steel origin. On the call, COO Pierre Paschini quantified the impact: “So it's going to cost us 5% on our margin. So -- but there's a lot of work out there. So I think it's feasible that we should be able to get some work by the end of the year.” — Pierre Paschini, President and Chief Operating Officer · 2026-04-16 Boursier emphasized how much worse it could have been under the old mix:

the same 10% announcement with our old setup, 85% volume and the majority of the Terrebonne fabrication going to U.S., that announcement could have had the potential of being a really significant negative impact on us. Luckily well, luckily, considering the mix, the portion of volume fabricated in Terrebonne going to the U.S. is much lower.

This tariff is effectively a new tax on the company's U.S. business, and while management is negotiating with clients to pass through some costs, it adds another layer of uncertainty to an already unpredictable trade environment. The company's commercial invoice exposure is now a key risk metric to watch.

Backlog Growth and the LAR Upside

Despite the tariff, ADF continues to book work. The largest recent contract – a 4-year master agreement for a Quebec hydroelectric project – will be executed by Groupe LAR, which is now expanding its plant in Métabetchouan. That expansion, funded by a ~$35M CapEx plan, is expected to drive efficiency gains in FY2028 and beyond. For FY2027, management guides for revenue growth but margin stagnation, with a second-half improvement as LAR's inherited backlog (signed under duress) rolls off. Boursier noted: “we're definitely not expecting huge improvement. So I'd really be satisfied to maintain the same type of margins for the full year with maybe margin being a bit more sluggish in the first half of the year and improving in the second.” — Jean-François Boursier, Chief Financial Officer · 2026-04-16 The nuclear certification mentioned on the September call – “We just received our certification of nuclear. There's quite a bit of work coming in Ontario.” — Jean Paschini · 2025-09-11 – adds a long-duration growth vector that is only now starting to contribute to the pipeline.

Why It Matters

ADF's story is one of resilience through active portfolio reshaping. The company enters FY2027 with a stronger, more balanced backlog, a growing hydroelectric franchise via LAR, and a U.S. facility in Montana that runs at ~60% capacity, offering incremental upside. The new tariff, however, is a reminder that trade policy can shift with little warning. The market's verdict will depend on whether ADF can pass through costs and whether the LAR expansion delivers the promised margin recovery. For now, the company is executing its playbook: grow the backlog, diversify the footprint, and ride out the tariff storm.