20.11.2003: Meldung: Trojan Technologies: Third Quarter Results
LONDON, ON, Nov. 19 / Trojan Technologies Inc. (TSX/TUV) today announced its financial and operating results for the three-month and nine-month periods ended September 30, 2003. "Our third quarter represented a mix of encouraging results and challenges," stated Marvin DeVries, President and CEO. "We continue to enjoy revenue growth with a year-to-date increase of over 13%. However, provisions for additional start-up and warranty costs detracted from these positive results. I am determined to deliver improved results. Delivering higher levels of customer service, improving quality while managing costs are not mutually exclusive. They are all critical to growing a successful business. I will be very focused in these areas in the months ahead as we drive improvements to our operating performance". Because the Company has changed its financial year-end from August to December, the third quarter results in this report are compared to the three months and nine months ended August 31, 2002, the Company"s fourth quarter under its previous reporting schedule. In accordance with accepted practice, this period has been selected as the comparative because it is the closest to September 30.
Financial highlights include:
- Revenue for the quarter was $27.9 million, an increase of 6.4% compared to $26.2 million in the comparable quarter of fiscal 2002. For the nine months ended September 30, 2003, revenues grew 13.2% to $83.9 million from $74.1 million in the nine months ended August 31, 2002.
- For the quarter, consolidated gross margin was $9.0 million or 32.2% compared to $12.6 million or 48.1% in the similar period last year. Consolidated gross margin for the nine-month period was $30.8 million or 36.7%, compared to $34.1 million or 46% in the nine-month period ended August 31, 2002. During the third quarter the Company recorded an additional $2.4 million of provisions to cover warranty and start up expenses. These additional provisions represent 8.6% of revenue for the three-month period and 2.9% of revenue for the nine-month period.
- For the quarter, the loss before other income and expenses was $1.4 million compared to income of $1.2 million in the comparable quarter of fiscal 2002. On a year-to-date basis, income before other income and expenses amounted to $0.9 million compared to $5.6 million in the nine months ended August 31, 2002. The results for the nine months ended September 30, 2003 were also negatively impacted by $9.5 million pre-tax of abandoned transaction costs recognized in the first quarter.
- In the third quarter, Trojan reported a net loss after tax of $0.9 million or $0.04 per share compared to income of $1.7 million or $0.08 per share in the similar quarter last year. For the nine-month period, Trojan reported a net loss of $6.9 million or $0.31 per share, compared to net income of $4.1 million or $0.20 per share in the nine-month period ending August 31, 2002.
- Order backlog at September 30, 2003 was $67.3 million, compared to $77.3 million at June 30, 2003 and $60.1 million at August 31, 2002.
- Cash and marketable securities totalled $15.2 million compared to $5.7 million at December 31, 2002. Net cash flow from operations was $5.6 million for the quarter compared to an outflow of $3.7 million in the comparable three-month period last year.
- Shareholders" equity was $79.7 million compared to $84.5 million at December 31, 2002.
Report to Shareholders for the Nine Months Ended September 30, 2003
To Our Shareholders
Our third quarter represented a mix of encouraging results and challenges. We continue to enjoy revenue growth with a year-to-date increase of over 13%. This is good performance relative to our peers. Gross margins were approximately 40%, excluding the additional provisions booked in the quarter. Administrative and selling costs are unchanged from a year ago, despite the growth in business. Our cash position continues to be strong with over $15 million of cash and marketable securities. Finally, our net cash flow from operations for the three-month period was positive at $5.6 million. Provisions for additional start-up and warranty costs unfortunately detracted from these positive results. On November 11, we advised you that our third quarter earnings would fall below expectations. Our release that day indicated that we identified the issues, quickly determined the root causes, undertook actions to resolve the problems to the satisfaction of customers and took all necessary steps to ensure any future exposure is contained. The failures were experienced in some systems built prior to 2003. In fact, the components and designs that failed have not been used since 2002. It was not good news for our shareholders but we have received many expressions of the positive feedback and confidence from our representatives and customers. Trojan stands behind its products. We are always striving to improve, but if we experience problems - we solve them and move forward. In doing so, we earn the trust and respect of our customers and ultimately are much better positioned to build a successful company in the longer term. We do not believe these component performance issues will impact our future business. We believe we have fully provided for the costs of rectifying these issues and do not anticipate any negative impact beyond this quarter I am not satisfied with the results the Company has delivered in recent quarters. Our revenues are growing and, relative to our peers, we are performing well. The growth in the water treatment market continues to fall below expectations and we will be working aggressively to look for opportunities for even faster market adoption of UV technology. I am determined to deliver improved results. Delivering higher levels of customer service, improving quality and managing costs are not mutually exclusive. They are all critical to growing a successful business. I will be very focused in these areas in the months ahead as we drive improvements to our operating performance. We are now finalizing our 2004 Business Plan and updating our 5-Year Strategic Plan. I look forward to discussing our outlook with you early in the New Year. Trojan is a strong and vibrant company with a vision to seize the opportunities that we see ahead. We remain focused on strengthening our operations to realize the benefits of our growth plan through improved execution. We remain committed to meeting the objectives of our shareholders and customers. I am well aware that we need to manage our expenses wisely in balance with the need to invest in our future to support our growth strategy. Our customers are demanding high levels of service and reliability and we will meet their expectations. The competitive landscape is always changing, and we will step up to the challenge on behalf of all our stakeholders.
President and Chief Executive Officer
November 19, 2003
Financial Analysis of Results
For the nine months ended September 30, 2003, revenues grew 13.2% to $83.9 million from $74.1 million in the nine months ended August 31, 2002. Revenue for the quarter was $27.9 million, an increase of 6.4% from $26.2 million in the comparable quarter last year. On a year-to-date basis, income before other income and expenses amounted to $0.9 million compared to $5.6 million in the nine months ended August 31, 2002. For the quarter, the loss before other income and expenses amounted to $1.4 million compared to income of $1.2 million in the fourth quarter of fiscal 2002. For the nine-month period, Trojan reported a net loss of $6.9 million or $0.31 per share, compared to net income of $4.1 million or $0.20 per share in the nine-month period ending August 31, 2002. In the third quarter, Trojan reported a net loss after tax of $0.9 million or $0.04 per share compared to income of $1.7 million or $0.08 per share in the similar quarter last year.
Analysis by Market
Revenue from municipal wastewater disinfection declined in the quarter and nine months year to date compared to similar periods last year, but was more than offset by increases in the municipal drinking water, industrial and commercial and residential businesses. Results by segment are as follows: - Municipal wastewater disinfection revenue was $53.8 million year to date compared to $59.6 million for the nine-month period ending August 30, 2002. On a quarterly basis, revenue declined to $15.9 million from $19.0 million in the previous year. Revenue last year was positively impacted by two large contracts. In the absence of these large contracts, the Company had forecasted a decline in wastewater project revenue in the current year and the quarterly results are in line with expectations. Revenue from after market sales and service increased by 15.2% in the nine months to $13.2 million compared to $11.5 million in the previous year.
During the quarter, the Company announced that it had been awarded a $2.7 million contract by the City of Grand Rapids in Michigan. Other contracts received in the quarter include an order for Trojan UV systems for municipal wastewater treatment for the City of Edmonton Alberta. The City of Shreveport, Louisiana also selected Trojan for a second time to install UV disinfection equipment for its wastewater treatment needs.
- Municipal drinking water revenue was $12.9 million year-to-date, a significant increase from $2.3 million in the similar period last year. For the quarter, municipal drinking water revenue increased to $4.1 million from $0.6 million in the comparable quarter last year During the quarter, the Company announced that it had been awarded a contract to supply UV solutions for the Regional Municipality of Niagara. Additional contract awards were received in the quarter to supply drinking water disinfection equipment to many municipalities including Moncton, New Brunswick, Beaverton, Ontario, Enderby, British Columbia and Middletown, New York.
- Environmental contaminant treatment revenue was $3.9 million and $3.6 million in the nine-month and three-month periods respectively. Revenue was $2.6 million in both the three months and nine months ended August 31, 2002.
Trojan continues to be successful in receiving the majority of contract awards in this segment. Subsequent to the quarter, Trojan announced at the Water Environment Federation Technical Exposition and Conference (WEFTEC) held in Los Angeles, California that the West Basin Municipal Water District in California pre-selected Trojan for UV water treatment equipment. Valued at approximately $2.7 million, the equipment will be installed at the West Basin Water Recycling Facility in El Segundo, California. The recycled water will be treated to levels that meet or exceed California standards for drinking water quality. While providing disinfection, the Trojan system will also be providing a barrier to unwanted chemicals in the water.
Backlog for municipal and ECT markets was $67.3 million. Approximately $18.9 million will be produced in 2003 with the remaining $48.4 million building the foundation for a strong backlog for production in 2004 and 2005. Management believes that current levels of bidding activity in the market, and the Company"s anticipated success in these bids, position the Company to increase backlog over the balance of the fiscal year. In addition to project revenue from municipal and ECT systems, the Company derives revenue from the sale of after market parts as well as from its industrial/commercial and residential businesses.
- Industrial and commercial revenue increased to $9.0 million year-to-date from $5.2 million in the previous year. For the quarter, revenue in this arena improved to $2.8 million from $1.9 million in the comparable quarter last year. The Company"s acquisitions and hiring of additional sales managers continue to drive growth in this sector despite slow market conditions.
- Residential market revenue increased to $4.5 million year to date compared to $4.4 million for the nine months ended August 31, 2002 but declined to $1.5 million in the quarter from $2.0 million last year. Sales in the most recent quarter were slow as our distributors did not place the expected levels of orders, citing their current inventory levels and slowing customer demand.
Consolidated gross margin for the nine-month period was $30.8 million or 36.7%, compared to $34.1 million or 46% in the nine-month period ended August 31, 2002. For the quarter, consolidated gross margin was $9.0 million or 32.2% compared to $12.6 million or 48.1% in the similar period last year. The gross margin for the quarter has been significantly impacted by the additional provisions for warranty and start up expenses of $2.4 million. In the absence of this additional provision, which represents over 8.6% of gross margin in the quarter or 2.9% on a nine-month basis, gross margins would be close to expected levels. The growth in drinking water revenue is a positive development for the Company. New and pending regulations in North America are driving increased demand, reflected in a more than five-fold increase in revenue this year. Because of initial production costs and intense efforts to monitor system performance and deliver quality products, there are increased costs being experienced this year. As a consequence, the gross margins earned on drinking water revenues in the current year are below the Company"s average. Last year"s gross margin performance benefited from two very large wastewater projects.
The Company"s objective is to reduce operating expenses, excluding amortization, to less than 30% of revenue. Operating expenses for the year to date, excluding amortization, were $27.2 million or 32.4% of revenue compared to $25.9 million or 35.0% of revenue for the nine months ended August 30, 2002. For the third quarter, operating expenses excluding amortization decreased by 8.7% to $9.4 million or 33.7% of revenue, compared to $10.3 million or 39.3% of revenue in the similar period last year. The Company is making good progress in reducing the cost of its ongoing sales and administrative expenses. On a year-over-year basis, administrative and selling expenses are effectively unchanged at $22.6 million, despite a 13.2% increase in revenue. Research and Development costs were $4.6 million compared to $3.3 million for the nine months ended August 30, 2002 reflecting increased activity, particularly in the development of product for the municipal drinking water market. At 5.5% of revenue, research and development costs are outside the normal range of between 4% and 5%. This reflects the timing of certain product development initiatives and costs are expected to stay above the anticipated range for the balance of the year.
Other Expenses and income
Interest and bank charges were reduced compared to the three months ended August 30, 2002 reflecting reduced long-term indebtedness and increased balances of cash and marketable securities.
Liquidity and Capital Resources
At September 30, 2003, net cash on hand, including marketable securities, was $15.2 million compared to $5.7 million at December 31, 2002. Cash generated from operating activities for the quarter was $5.6 million compared to a utilization of $3.7 million for the three months August 31, 2002. The improvement in cash flow is generally attributable to improved working capital ratios. During the quarter there were declines in trade receivables, inventory and unbilled revenue (contracts in progress). The Company also received progress payments on certain contracts resulting in an increase in deferred revenue. The strengthening of the warranty and start up provisions has contributed to an increase in accounts payable and accrued charges. In order to protect the Company from the possibility of loss related to the cash flows relating to future export sales in U.S. dollars should the value of the U.S. dollar decline relative to the Canadian dollar, the Company has entered into forward foreign exchange rate contracts that oblige it to sell specific amounts of U.S. dollars at set future dates at predetermined exchange rates. During the quarter, the Company unwound US$48 million of forward currency sale contracts maturing at various rates through to September 2005. At the same time, the Company entered into a series of forward currency sale contracts from July 2003 to December 2005 aggregating US$60 million at an exchange rate of CAD$1.40. The net cash generated from this transaction of $8.0 million is included in cash from financing activities The Company"s capital position is strong with long-term debt of $3.2 million and shareholders" equity of $79.7 million. During the quarter, the Company repaid its long-term debt that was denominated in Canadian dollars and has refinanced by borrowing in Euros. This transaction has reduced borrowing costs to 4.63% from 6.5% and has, at the same time, reduced the Company"s exposure to fluctuations in the Euro/CAD exchange rate. As at September 30, 2003 there are 590,500 warrants outstanding to purchase common shares at $8.25 to December 17, 2003.
A conference call and webcast will be held for investors, analysts and media at 2:00 pm EST on November 19, 2003. The conference call will be hosted by Marvin DeVries, President & CEO, and will include Douglas Alexander, Executive Vice President and Chief Financial Officer. The phone number to call is (416) 640-4127 or (800) 814-3911. The live webcast and a rebroadcast will be available at www.trojanuv.com <http: www.trojanuv.com.="" A="" taped="" version="" of="" the="" call="" will="" be="" available="" until="" midnight="" Wednesday,="" November="" 26,="" 2003="" by="" calling="" (416)="" 640-1917="" or="" (877)="" 289-8525="" and="" dialling="" passcode="" number="" 21024706="" followed="" by="" the="" number="" sign.="" Trojan="" Technologies="" is="" a="" Canadian="" based,="" high="" technology="" environmental="" company="" operating="" internationally.="" Trojan="" designs,="" manufactures="" and="" sells="" UV="" systems="" for="" municipal="" wastewater="" and="" drinking="" water="" facilities,="" as="" well="" as="" for="" the="" industrial,="" commercial="" and="" residential="" markets.="" The="" company="" also="" provides="" UV="" treatment="" for="" the="" removal="" of="" toxic="" chemicals="" from="" water.="" With="" 26="" years="" of="" experience="" and="" over="" 3,500="" municipal="" facilities="" in="" more="" than="" 25="" countries="" using="" its="" technology,="" Trojan="" has="" the="" largest="" installed="" base="" of="" UV="" systems="" in="" the="" world.="" The="" company="" has="" over="" 350="" employees="" around="" the="" world.="" Headquartered="" in="" London,="" Ontario,="" Trojan="" has="" offices="" in="" Germany,="" the="" U.K.,="" Netherlands,="" Norway,="" Spain,="" and="" the="" U.S.="" Its="" shares="" are="" listed="" on="" The="" Toronto="" Stock="" Exchange="" under="" the="" trading="" symbol="" TUV.="" <br="">
Trojan Technologies Inc.
Incorporated under the laws of Ontario
For further information: please contact: Doug Alexander, Chief Financial Officer or Diana Cunningham, Corporate Communications/Investor Relations, Trojan Technologies Inc., Tel: (519) 457-3400, www.trojanuv.com