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Meldungen 09.11.2006

9.11.2006: Meldung: Dynetek Industries Ltd.: nine months and third quarter results

Dynetek reports 2006 nine months and third quarter results

Wednesday November 8, 4:30 pm ET

 

<< - Record nine month revenues of $26.3 million - up 32% from the first nine months of 2005 - Record third quarter revenues of $8.7 million - up 45% from the third quarter of 2005 - Contribution margins increased from 22% in the second quarter to 23% in the third quarter

CALGARY, Nov. 8 / Dynetek Industries Ltd., a leader in the design, manufacturing and marketing of proprietary fuel storage cylinders and systems for compressed natural gas (CNG) and hydrogen, today reported results for the three-months and nine months ended September 30, 2006.

 

Conference call information is provided below.

 

Financial Highlights

 

- Total revenues for the nine months ended September 30, 2006 of

$26.3 million increased $6.3 million or 32% from the same period of

2005.

- Total revenues for the three months ended September 30, 2006 of

$8.7 million increased $2.7 million or 45% from the comparative third

quarter of 2005.

- Cylinder and system sales for the nine months ended September 30,

2006 of $24.6 million increased $6.9 million or 39% compared with the

nine months ended September 30, 2005.

- Cylinder and system sales for the three months ended September 30,

2006 of $8.3 million increased $2.7 million or 48% from the

comparative third quarter of 2005.

- Contribution margins increased from 22% in the second quarter to 23%

in the third quarter.

- Eleventh consecutive quarter of positive EBITDA(1) including

$0.3 million for the three months ended September 30, 2006.

- Confirmed order book in excess of $17 million the majority to be

delivered in the fourth quarter of 2006 and the first quarter of

2007.

>>

 

Robb Thompson, President and Chief Executive Officer, said the third quarter results reflect Dynetek"s commitment of continuing to focus on CNG cylinder and system sales to our target market of bus and truck manufacturers predominantly in Europe and to new international market opportunities for our bulk hauling solutions.

 

"Our focused strategy of achieving near term revenue increases in CNG and industrial gas storage markets, along with our leadership position in the emerging hydrogen industrial and automotive storage market, has positioned Dynetek for both short and long term growth in the alternative energy market on a global basis," commented Mr. Thompson. "Our third quarter cylinder and system sales were a record 48% higher than the third quarter of 2005 and our nine months cylinder and system sales were 39% higher than the nine months reported in 2005."

 

"As reported in our second quarter 2006 report, our increases in cylinder and system sales during our second quarter were negatively offset by reduced contribution margins related to expediting European customer shipments on a more costly basis, due to delivery issues from a key material supplier," said Mr. Thompson. "In the third quarter we were able to increase our contribution margins to 23% from 22% compared to the second quarter by working closely with our supplier to overcome past delivery issues."

 

(1) Earnings before interest, income taxes, non-cash foreign

exchange, depreciation and amortization, stock based compensation and

impairment of other assets (EBITDA) is a non-GAAP measure and may not

be comparable to similar measures used by other companies. Management

believes EBITDA is a useful measure to assist in the assessment of

Dynetek"s ability to generate cash flows from its operations.

 

 

OPERATIONAL HIGHLIGHTS

 

For the nine months ended September 30, 2006 Dynetek reported a net loss of ($0.2) million compared to a loss of ($1.8) million for the same period of 2005. For the three months ended September 30, 2006 Dynetek reported a net loss of ($0.3) million compared to a loss of ($1.3) million for the same period of 2005. In the first nine months of 2006, Dynetek achieved total revenues of $26.3 million compared to $20.0 million for the same period of 2005. Cylinder and system sales for the nine months ended September 30, 2006 were $24.6 million compared to $17.7 million for the same period of 2005. In the third quarter of 2006, Dynetek achieved total revenues of $8.7 million (2005 - $6.0 million) with cylinder and system sales of $8.3 million (2005 - $5.6 million) included in these third quarter results. The Company"s goal is to achieve increased cylinder and system sales in each quarter compared to the prior year comparative quarter. The Company recorded cash flow deficiency from operations of ($0.8) million for the nine months ended September 30, 2006, compared to cash flow from operations of $0.7 million for the same period of 2005. Cash flow deficiency from operations for the three months ended September 30, 2006 was ($2.1) million compared to ($1.6) million for the same period of 2005. The Company continues to have positive EBITDA(1) and reported $1.7 million for the nine months ended September 30, 2006 and positive EBITDA(1) of $0.3 million for the three months ended September 30, 2006 representing the eleventh consecutive quarter.

 

The Company continues to focus its compressed natural gas cylinder and system sales in areas such as California and Europe. In Europe, the Company has seen strong growth due to the need to meet regulatory environmental requirements and the price differential of natural gas compared to diesel. In the first nine months of 2006, Dynetek"s European operations achieved record cylinder and system sales of $15.0 million. Dynetek"s proprietary technology provides advantages such as less weight, more compressed natural gas on board and less operating costs, being the value proposition we offer our customers that our competitors cannot provide. This same model was used to develop the California market for heavy-duty trucks.

 

The cylinder and system sales from the Canadian operations for the nine months ended September 30, 2006 were $9.6 million, an increase of 48% when compared to the comparable period of 2005.

 

Dynetek"s research and development team continues to focus its efforts on compressed hydrogen and related storage requirements. During the first nine months of 2006 the Company continued to work with 9 different OEMs, including Ford, Hyundai, DaimlerChrysler and Nissan, to design, manufacture and deliver the hydrogen storage solution on 12 confidential development programs.

 

On October 4, 2006 Heinz Portmann, Chairman of the Board of Directors of Dynetek Industries Ltd., announced that the Board of Directors had reluctantly accepted the resignation of Robb Thompson, President and CEO effective December 31, 2006. Christian Rasche, Executive Director, Dynetek Europe GmbH, was appointed by the Board of Directors as the new President and CEO effective January 1, 2007. Mr. Thompson agreed to stay on as a director after December 31, 2006.

 

(1) Earnings before interest, taxes, stock based compensation, non-cash

foreign exchange, impairment of other assets, depreciation and

amortization (EBITDA) is a non-GAAP measure and may not be comparable

to similar measures used by other companies. Management believes

EBITDA is a useful measure to assist in the assessment of Dynetek"s

ability to generate cash flows from its operations.

 

 

MANAGEMENT"S DISCUSSION AND ANALYSIS

 

The following sets out management"s discussion and analysis of our financial position and results of operations for the three months and nine months ended September 30, 2006 and 2005. The interim management"s discussion and analysis (MD&A) updates our annual MD&A included in our 2005 Annual Report to Shareholders, to which readers are referred. No update is provided where an item is not material or where there has been no material change from the discussion in our annual MD&A.

 

Cylinder and system sales for the nine months ended September 30, 2006 were $24.6 million, up 39% from $17.7 million for the same period of 2005. Cylinder and system sales for the three months ended September 30, 2006 were $8.3 million, up $2.7 million or 48% for the same period in 2005. The Canadian dollar to US dollar exchange rate averaged $1.13 during the first nine months of 2006 compared to $1.23 for the same period of 2005. Had the U.S. dollar to Canadian dollar exchange rate achieved the levels of the first nine months of 2005 in the first nine months of 2006, revenues would have been $0.8 million higher. The Canadian dollar to Euro exchange rate averaged $1.41 during the first nine months of 2006 compared to $1.44 for the same period of 2005. Had the Euro to Canadian dollar exchange rate achieved the levels of the first nine months of 2005 in the first nine months of 2006, revenues would have been $0.3 million higher.

 

During the third quarter of 2006, customers who purchased the DyneCell fuel storage systems(R) for CNG included: Marubeni Metals Corp. (Japan), McNeilus Truck (United States), Iris Bus (Italy), Thomas Built Buses (United States), NEOMAN (Europe), Heuliez Bus (Europe), and Crane Carrier (United States). Customers who purchased hydrogen and other compressed gas fuel storage systems included: DaimlerChrysler (Germany), Hyundai (Korea), Ford Motor Company (United States), and Nissan (Japan).

 

Research and development income for the nine months ended September 30, 2006 was $1.6 million, down 27% or $0.6 million from the same period in 2005. Research and development income for the third quarter was $0.4 million, which is comparable to the same period of 2005. During the first nine months of 2006, Dynetek continued to be involved with Natural Resources Canada (NRCan) and 9 different Original Equipment Manufacturers (OEMs), including Ford, Hyundai, DaimlerChrysler and Nissan, to design, manufacture and deliver the hydrogen storage solution on 12 confidential development programs. Revenues received from the OEMs regarding these projects are recorded on billing milestones outlined in the contracts and, therefore, timing differences occur between when costs are incurred and funding is received. Non-repayable cost shared monies received from NRCan are recorded as revenue in the period it is invoiced.

 

During the first nine months of 2006, Dynetek received non-repayable cost shared monies of $0.5 million from NRCan for the development and testing of a 700bar (10000psi) complete fueling system.

 

Investment and other income for the nine months ended September 30, 2006 was $0.1 million, comparable to the same period in 2005. In the third quarter of 2006, investment and other income was $13,000 compared to $12,000 for the same period of 2005.

 

Cost of goods sold was $18.9 million for nine months ended September 30, 2006 compared to $13.1 million for the same period in 2005. Cost of goods sold was $6.4 million for three months ended September 30, 2006 compared to $4.1 million for the same period in 2005. Corresponding contribution margins for the nine months ended September 30, 2006 were $5.7 million, or 23% of sales compared to $4.6 million or 26% of sales for the same period of 2005. Corresponding contribution margins for three months ended September 30, 2006 were $1.9 million, or 23% of sales compared to $1.5 million or 27% of sales for the same period of 2005. The reduction in the contribution margin for both the nine and three month periods is reflective of the increase in carbon fibre pricing over the last year and increased freight charges for expedited deliveries to European customers in the second and third quarter of 2006.

 

General and administrative expense was $2.8 million for the nine months ended September 30, 2006, $0.3 million higher than the $2.5 million for the same period of 2005. General and administrative expense was $0.9 million for the three months ended September 30, 2006, $0.1 million higher than $0.8 million for the same period of 2005. Overall general and administration costs decreased as a percentage of revenue from 13% in the first nine months of 2005 to 11% in the first nine months of 2006. Overall general and administration costs decreased as a percentage of revenue from 13% in the third quarter of 2005 to 10% in the third quarter of 2006.

 

Research and product development expense was $1.6 million for the nine months ended September 30, 2006 compared to $2.3 million for the same period in 2005. Research and product development expense was $0.6 million for the quarter ended September 30, 2006 which is comparable to same period in 2005. Research and development expense consists of materials, labour and costs of benefits and overhead related to research and development activity.

 

The majority of Dynetek"s research and development programs are co-funded with major OEMs and government (NRCan). The funding from the OEMs for the research and development programs is recorded as research and development revenue based on billing milestones outlined in the contracts. This can result in timing differences between when costs are incurred and funding is received. The government funding is recorded either as research and development income or loans. The cost shared monies received from NRCan, which are non-repayable, are recorded as research and development revenue in the period it is invoiced and the repayable government cost shared monies are recorded as a loan.

 

Marketing expense was $1.4 million for the nine months ended September 30, 2006, an increase of $0.2 million from $1.2 million for the same period of 2005. Marketing expense was $0.5 million for the three months ended September 30, 2006, an increase of $0.2 million from $0.3 million for the same period of 2005. Overall marketing expense was 5% of sales for the nine months ended September 30, 2006 compared to 6% of sales for the same period of 2005. Overall marketing expense was 6% of sales for the three months ended September 30, 2006 compared to 5% of sales for the same period of 2005. The increase in the marketing expense is a result of an increase in commissions paid to outside agents.

 

Interest expense was $22,000 for the nine months ended September 30, 2006, compared to $nil for the same period of 2005. Interest expense was $22,000 for the three months ended September 30, 2006, compared to $nil for the same period of 2005. At September 30, 2006 the Company had drawn down $2.2 million on its operating line of credit compared to a $nil balance for the same period of 2005.

 

Depreciation was $1.1 million for the nine months ended September 30, 2006, $0.2 million higher than the $0.9 million for the same period of 2005. Depreciation was $0.4 million for the three months ended September 30, 2006, $0.1 million higher than the $0.3 million for the same period of 2005.

 

Amortization was $0.5 million for the nine months ended September 30, 2006, which was $0.2 million higher than the same period of 2005. Amortization was $0.2 million for the three months ended September 30, 2006, which is $0.1 million than the $0.1 million for the same period of 2005. Items included in amortization expense include certification costs, patents and deferred start-up costs for the European operation.

 

Foreign exchange for nine months ended September 30, 2006 was a loss of ($0.2) million compared to a loss of ($0.7) million in the same period of 2005. Foreign exchange for three months ended September 30, 2006 was a loss of ($6,000) compared to a loss of ($0.4) million for the same period of 2005. Dynetek"s Canadian operation invoices the majority of its revenue in US dollars and the European operation invoices in Euros. The Company reports its results in Canadian dollars but the revenues are generated in US dollars, Euros and Canadian dollars. The foreign exchange loss in the first nine months of 2006 is a result of a weakening of the United States dollar against the Canadian dollar, resulting in a negative impact on the foreign denominated accounts receivable and cash when translating into Canadian dollars for financial reporting purposes and the settlement of accounts receivable transactions during the period.

 

To minimize exposure to foreign exchange fluctuations, the Company began in the first quarter of 2006 using monthly forward contracts in order to reduce the foreign exchange translation exposure on accounts receivable, payables and cash. The effect of the monthly forward contracts was a net cash outflow of $57,000 for the nine months ended September 30, 2006.

 

Impairment of other assets for nine months ended September 30, 2006 was $nil compared to a loss of ($0.5) million in the same period of 2005. Impairment of other assets for three months ended September 30, 2006 was $nil compared to a loss of ($0.5) million for the same period of 2005. Other long-term assets represented amounts receivable from a customer for which the Company agreed to revise the terms of repayment. As of September 30, 2005 based on current financial information provided by the customer during the third quarter of 2005, management believed the full amount of the receivable had been impaired and collection of the receivable was not likely to occur. This impairment resulted in the one time charge of $0.5 million being expensed in the income statement.

 

Net Loss for the nine months ended September 30, 2006 was ($0.2) million or ($0.01) per common share compared to a loss of ($1.8) million or ($0.09) per common share for the comparable period of 2005. Net loss for the three months ended September 30, 2006 was ($0.3) million or ($0.02) per common share compared to ($1.3) million or ($0.06) per common share for the same period of 2005. The reduction in the net loss for nine months ended September 30, 2006 is substantially the result of an increase in cylinder and system sales, a reduction of stock based compensation, no impairment of other assets and a decrease in the foreign exchange loss. The reduction in the net loss for the three months ended September 30, 2006 is substantially the result of an increase in cylinder and system sales, a reduction of stock based compensation, no impairment of other assets and a decrease in the foreign exchange loss, offset partially by a reduction of the contribution margin compared to the third quarter of 2005 and increases in depreciation expense and amortization of intangible assets and deferred costs.

 

VALVE DIVISION

 

The Valve Division is focused entirely on research and development activities. During the first nine months of 2006 the Valve Division received no additional funding of non-repayable cost shared monies from NRCan compared to the $0.2 million received in 2005.

 

EUROPEAN OPERATIONS

 

Dynetek Europe GmbH ("Dynetek Germany") has progressed considerably since its inception in 2001 by obtaining cylinder and production certification, developing infrastructure, and marketing the DyneCell(R) primarily throughout Europe.

 

In the nine months ended September 30, 2006 Dynetek Germany generated $15.0 million of revenue compared to $11.2 million in the same period of 2005. In the quarter ended September 30, 2006 the subsidiary generated $5.5 million of revenue compared to $2.9 million for the same period of 2005.

 

Summary of Quarterly Results

 

The following table shows selected unaudited financial information for the past nine quarters ending September 30, 2006. The information has been obtained from our quarterly unaudited financial statements, which have been prepared in accordance with Canadian GAAP and, in the opinion of management, have been prepared using accounting policies consistent with the audited financial statements and include all adjustments necessary for the fair presentation of the results of the interim periods. We expect our operating results to vary significantly from quarter to quarter and they should not be relied upon to predict future information.

 

 

Capital expenditures for the nine months ended September 30, 2006 were $1.9 million compared to $1.2 million for the same period in 2005. Capital expenditures for the three months ended September 30, 2006 were $1.1 million compared to $0.4 million for the same period in 2005. The increase in capital expenditures is due to plant expansion in Germany to meet the growing CNG demand for bus applications.

 

The Company"s capital resource requirements consist of capital expenditures to maintain, expand and improve the existing production line.

 

Financial Resources and Liquidity

 

The Company"s principal liquidity requirements relate to the increase in working capital required to maintain our increase in sales.

 

As at September 30, 2006 Dynetek had cash and cash equivalents of $1.2 million, compared to $2.6 million at June 30, 2006 and $2.8 million at December 31, 2005. Dynetek had a cash flow deficiency from operations of ($0.8) million for the nine months ended September 30, 2006 and ($2.1) million for the three months ended September 30, 2006. Dynetek"s working capital level was $13.6 million at September 30, 2006, as a result of the growth of the Company"s revenues and the increase in production levels to meet demand.

 

The Company"s investment in inventory resulted in an increase of $2.6 million to $13 million at September 30, 2006 from December 31, 2005. Work-in-progress represented by confirmed orders increased by $1.4 million to $4.0 million from December 31, 2005. Raw material levels increased by $1.9 million from December 31, 2005 to $5.0 million as a result of carbon fiber deliveries received at the end of September 2006. Finished goods inventory decreased by $0.7 million to $4.0 million from the December 31, 2005 levels.

 

At September 30, 2006 accounts receivable were $7.4 million, an increase of $0.9 million when compared to December 31, 2005. The Company seeks to manage the collection of receivables and the payment of payables in a manner that working capital levels will continue to fund ongoing operations. Accounts payable at September 30, 2006 were $6.0 million, compared to $5.1 million as at December 31, 2005.

 

The Company"s actual funding requirements will vary depending on a number of factors, including the increase of the CNG system sales on a global basis, the progress of research and development projects and the development of additional relationships with strategic partners. Dynetek remains committed to enhancing its technological leadership and remaining a market leader in the industrial gas fuel storage industry, including CNG and hydrogen.

 

The long-term debt relates to repayable research and development funding supplied by NRCan. These agreements allow Dynetek to retain the intellectual property and to receive long-term funding. The debt is repayable only in the form of royalties based on specific related commercial product sales and is interest free. The Company has $0.2 million to be repaid in 2006. The Company believes that additional cost shared monies will continue to be available from governments and OEMs for future research and development projects.

 

Dynetek continues to build on the strong strategic alliances with several major OEMs whereby confidential joint funding has been obtained to develop complete hydrogen fuel storage systems. Other research programs with strategic partners, such as government bodies, who provide financial and technical support, are also in place to explore other storage applications in the energy marketplace.

 

At September 30, 2006, the Company had drawn down $2.2 million of a $5.0 million operating line of credit facility with a major chartered bank.

 

Transactions with Related Parties

 

For the nine months ended September 30, 2006, the Company purchased under normal terms and conditions $7.6 million (2005 - $5.1 million) of material used in the production of lightweight fuel storage systems from Mitsubishi Rayon Corporation, a shareholder of the Company.

6,738.

 

 

OUTLOOK

 

 

Revenues from CNG cylinder and system sales in each quarter of 2006 are expected to increase over the comparative quarter in 2005. This growth is expected primarily from the Company"s existing European operations and from new opportunities primarily in bulk hauling and the Californian market.

 

Revenue from compressed hydrogen cylinder and system sales will continue to vary on a quarter-to-quarter and year-to-year basis. This revenue is dependent on the compressed hydrogen storage requirements of OEMs and other industrial hydrogen companies. The Company is unable to influence the timing of the automotive OEM compressed hydrogen development programs.

 

Research and development income is directly related to the Company"s plans for new products or processes which have the best opportunity of creating near-term revenues. The ability to generate funding from customers and partners dictates how much research and development occurs over any 12-month period. Timing differences can occur between when research and development costs are incurred and when revenue is invoiced and earned. Therefore a deficiency or surplus of revenues over expenditures may vary on a quarter-by-quarter basis. The Company"s goal over a twelve month fiscal period is be at least break-even with the research and development program.

 

In the third quarter of 2006 the Company invested approximately $1.1 million in production expansion for the European operations. The Company believes with these expenditures in manufacturing assets and additional production space, it has the assets in place to support its current rate of growth and has no plans for any additional significant expenditures on capital assets during the remainder of 2006. The Company will continue to seek international opportunities for additional production locations to provide near-term ongoing revenue growth. Potential production strategic partnerships and opportunities to finance international growth are reviewed on a case-by-case basis.

 

On November 2, 2006, the Company announced the signing of a letter of intent with Delphi Automotive Systems Do Brazil LTDA. ("Delphi SA"). Delphi SA is a wholly owned subsidiary of Delphi Corp., of Troy, Michigan. The letter of intent records the intention of Dynetek and Delphi SA to negotiate a commercial agreement to establish an exclusive distributorship arrangement and the prospect for a manufacturing plant in Brazil for South America. The initial phase of the project provides for determining the market potential of Dynetek CNG cylinders and systems in Brazil. Delphi SA will introduce Dynetek CNG cylinders into Brazil for bus and passenger car applications.

 

The Company continues to review all options to deal with growth and global prospects. As disclosed in March 2006, a Special Committee has been formed to review and advise the Board of Directors of strategic alternatives available to the Company for enhancing shareholder value, including, but not limited to, raising of capital, strategic partnerships or business combinations.

 

Additional information relating to Dynetek

 

Additional information concerning Dynetek, including the Company"s AIF, is available on SEDAR at www.sedar.com.

 

Dynetek Industries Ltd. is a leading international company engaged in the design, manufacturing and marketing of fueling systems and high-pressure components including valves and regulators. The key component of the storage system is the DyneCell (R) cylinder, capable of storing high pressure gases including compressed natural gas (CNG), hydrogen, and various industrial gases. Dynetek"s cylinder and fuel storage systems applications include but are not limited to: the transportation industry, including passenger automobiles, light and heavy-duty trucks, transit and school buses; the bulk hauling of compressed gases; and stationary storage or ground storage refueling applications.

 

Conference Call

 

Dynetek will hold a conference call and web cast on Thursday, November 9, 2006 at 7:00 a.m. MST (9:00 a.m. EST) to discuss its Third Quarter 2006 financial and operating results and to provide an update on developments at the company.

 

Participants in the continental United States and Canada can access the conference call at 1-800-741-3792. Participants calling from the UK geographic area can access the call at 1-800-528-0631 or 44-870-001-3131.

 

Digital replay of the call will be available approximately one hour after the call is completed and until November 23, 2006. To access the replay in the continental United States or Canada call 1-800-558-5253 or from outside this geographic area, call 1-416-626-4100. To access the replay in the UK geographic area call 1-800-692-0831 or 44-870-000-3081. The confirmation number for the replay is 21307647. The audio web cast can be accessed on Dynetek"s web site at www.dynetek.com and it will be archived for replay for 30 days.

 

 

 

For further information

 

Robb D. Thompson, President and Chief Executive Officer, Dynetek Industries Ltd., 4410-46 Avenue S.E., Calgary, Alberta, T2B 3N7, Tel: (403) 720-0262

Toll-free: 1-888-396-3835

Fax: (403) 720-0263

Web: www.dynetek.com

 

 

Source: Dynetek Industries Ltd.

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