4.3.2004: Meldung: Trojan Technologies: 2003 Results
LONDON, - Trojan Technologies today announced its results for the three and twelve months ended December 31, 2003.
"We made significant progress in 2003 in growing our business. We have exceeded our revenue targets for the year and have also succeeded in increasing our order backlog to provide the foundation for future growth. Our strategy of diversifying our business to markets with higher growth opportunities is clearly paying off," said Marvin DeVries, Trojan"s President and CEO. "It was, however, a difficult year from an operating perspective. The marketplace is competitive and we are seeing pricing pressures, particularly in markets outside North America. Our annual results have been negatively impacted by a number of events earlier in 2003. But, in the fourth quarter, I am encouraged by our strong growth and improved expense control. Further improvements to our performance is a top priority for 2004."
Because the Company has changed its financial year-end from August 31 to December 31, the fourth quarter results in this report are compared to the four months ended December 31, 2002. The full year results are compared to the twelve months ended August 31, 2002. In accordance with accepted practice, these periods have been selected for comparative purposes because they are the closest to December 31.
Financial highlights include:
- Revenue for the three months was $29.1 million compared to
$31.8 million in the four-month period ended December 31, 2002.
For the twelve months ended December 31, 2003, revenues grew 22.0%
to $113.1 million from $92.7 million in the twelve months ended
August 31, 2002.
- For the quarter, consolidated gross margin was $10.8 million or
37.1% compared to $13.0 million or 41.0% in the similar four-month
period last year. Consolidated gross margin for the full year was
$41.6 million or 36.8%, compared to $40.9 million or 44.2% in the
twelve-month period ended August 31, 2002.
- For the quarter, income before other income and expenses was
$1.1 million compared to income of $0.2 million in the comparable
four-month period in 2002. On a full-year basis, income before
other income and expenses amounted to $1.7 million compared to
$5.4 million in the twelve months ended August 31, 2002.
- The results for the twelve months ended December 31, 2003 were
negatively impacted by $12.5 million of abandoned transaction
costs, severance costs and additional warranty provisions
recognized earlier in the year.
- In the fourth quarter, Trojan reported net income after tax of
$0.9 million or $0.04 per share compared to income of $0.2 million
or $0.01 per share in the comparable four-month period ending
December 31, 2002. For the twelve-month period, Trojan reported a
net loss of $6.4 million or $0.29 per share, compared to net
income of $3.7 million or $0.19 per share in the twelve-month
period ending August 31, 2002.
- Order backlog at December 31, 2003 was $75.3 million, an increase
of 12% from $67.3 million at September 30, 2003, and $69.4 million
at December 31, 2002.
- Cash and marketable securities totalled $16.6 million at December
31, 2003 compared to $5.7 million at December 31, 2002. Net cash
flow from operations was $2.3 million for the quarter compared to
$0.6 million in the comparable four-month period last year. Cash
flow from operations for the year was $13.8 million compared to an
outflow of $2.6 million at August 31, 2002.
- Shareholders" equity was $78.4 million compared to $84.5 million
at December 31, 2002.
Review of 2004 Plans and Priorities
The following is an extract from the Letter to Shareholders from Marvin Devries, President and CEO. The letter in full will be contained in the 2003 Annual Report that will be available and mailed to shareholders in April 2004.
When I assumed leadership in June 2003, I reflected on Trojan"s strengths and on the opportunities ahead of us, while recognizing our challenges at the same time. I believe we are now well positioned to leverage our strengths to build value for all our stakeholders.
Here are the reasons why.
1. Trojan is the leading UV technology brand name in the North
American municipal wastewater and drinking water markets. We have
a business plan clearly focused on profitable growth in five
- Municipal Wastewater - Trojan is a global leader in a large
- Municipal Drinking Water - Trojan has established itself as
a leading player in the emerging North American drinking
water market and is developing an effective product range to
- Environmental Contaminant Treatment (ECT) - Trojan has been
successful in almost all projects awarded to date for the
treatment of chemical contaminants in groundwater and
- Industrial and Commercial Process Water - Trojan has
industrial installations worldwide, and has increased its
capabilities in this area through strategic acquisitions.
- Consumer - Trojan has earned an established position in the
large point-of-entry market.
2. UV technology represents a high-growth opportunity within the
already large global water treatment and disinfection markets.
The water market is growing and UV is well positioned to meet the
regulatory requirements in place or being developed for
3. Public awareness of the benefits of UV technology over
traditional treatment methods is increasing, and adoption rates
are growing. The relationship between contaminated water and
illnesses is much better understood today. High profile outbreaks
of waterborne contaminants have given water treatment issues a
much higher public profile.
4. Trojan has a history of, and commitment to, technology
innovation, market leadership and customer satisfaction. We have
been at the forefront of technical innovation through our
commitment to research and development. Our products, our markets
and our company have matured in recent years. We have clearly
been innovators, but more recently, have refined our business
strategy to ensure we are tightly aligned with the needs of our
customers. We have moved beyond simply delivering innovative
product solutions. We are now capitalizing on highly valued
after-market sales and service opportunities.
5. A solid balance sheet. We will grow by combining organic growth
in our business with targeted acquisitions that complement our UV
applications or add to our sales and marketing capabilities. With
a strong balance sheet in place, we have the resources to
capitalize on acquisition opportunities.
Looking forward to 2004, we have defined very clear strategies to build on our unique position. We recognize our strengths and have identified opportunities within our current markets to make meaningful progress. We have also realized that we continue to improve the way we do business: generally by positioning ourselves to compete effectively in global markets, and specifically, by developing our leadership and management practices to ensure a higher standard of execution.
We have established five strategic priorities for 2004:
- Deliver Innovative Solutions: Leverage the integrity of our
science and our understanding of our customers to develop and
deliver integrated solutions that solve our customers" problems.
- Expand Customer Relationships: Expand the utilization of our
global sales channels, providing better services to Consulting
Engineers and customers by delivering value beyond our core
- Globalize the Business: Grow our business by identifying,
prioritizing and penetrating geographic and arena markets where we
can leverage our products and competencies profitably to become a
- Accelerate Demand: Leverage our research and market leadership,
and relationships to build awareness and drive broad acceptance of
our solutions among regulators, customers, and end-users.
- Improve our Execution: Elevate our leadership, management and
operational processes to reduce uncertainty and achieve a level of
excellence that enables us to profitably grow the business quickly
These five strategies - and the tactics set out to support them - establish the direction for improved operating performance. We are expecting further growth in revenue. Our growing backlog, our increased diversification and additional sources of recurring revenue give us confidence that we can achieve our target of 20% growth, before including the impact of the US Peroxide acquisition.
Our goal is to return to a much stronger level of net profitability in 2004. We will manage our operating expenses carefully to benefit from the economies of scale that our organic growth creates. At the same time, we will make the necessary investments to support profitable growth in our business by further enhancing the quality of our products and services. Finally, we will continue to support research and product development to maintain our leadership in the market.
Review of Financial Results for the Three Months ended December 31, 2003
During the three-month period ending December 31, 2003, marketplace highlights included:
- Municipal wastewater disinfection market - The municipal wastewater
market was by far the largest market for Trojan"s ultraviolet systems
during the period. Revenues in the three-month period were
$20.5 million compared to $18.7 million in the four months ended
December 31, 2002. As anticipated, this market has not seen growth
during the year as municipal spending has focused on other priority
areas. Despite this drop in funding, there has been an increase in
Trojan business year over year.
For the full year, revenues were $74.3 million compared to
$72.3 million in the twelve months ended August 31, 2002. The
percentage of total revenue from the municipal wastewater market
represents 66% of total revenue compared to 78% in the fiscal year
ended August 31, 2002. This reduction in percentage reflects the
Company"s strategy to diversify its business in other markets and
reduce its dependence on the wastewater market to maintain growth and
- Municipal drinking water market - Revenues in this market arena were
$2.8 million in the three months compared to $3.3 million in the four
months ended December 31, 2002.
For the full year, revenues increased five-fold to $15.6 million
compared to $3.1 million in the twelve months ended August 31, 2002.
The percentage of total revenue from the drinking water market
increased to 14% compared to 3% in the fiscal year ended August 31,
2002. Revenues in North America were $13.3 million, increasing
dramatically from $2.4 million in year ended August 31, 2002
reflecting the rapid development of the market, particularly in
Canada, as municipalities adapt to new drinking water regulations.
- Environmental contaminant treatment (ECT) - Revenues in the
environmental contaminant treatment market were $2.1 million for the
three months compared to $3.3 million in the four-month period last
year. The ECT business continues to generate good growth. However, the
delay of a single project initially planned for delivery in late 2003
but now postponed by the customer to the summer of 2004, caused full
year revenue to fall below our expectations.
For the full year, revenues were $5.9 million compared to $4.4 million
in the twelve months ended August 31, 2002. The percentage of total
revenue from the environmental contaminant market remained constant at
5% during these two years. We anticipate further growth in this market
in 2004 to be accelerated by the acquisition of US Peroxide, LLC that
was completed in January 2004.
- Industrial and commercial process water treatment - Revenues in the
industrial and commercial market were $2.5 million in the quarter
compared to $4.6 million in the four months ended December 31, 2002.
The 2002 results were influenced by a single large sale of
For the full year, revenues increased by 55% to $11.4 million from
$7.4 million in the twelve months ended August 31, 2002. The
percentage of total revenue from the industrial and commercial market
increased to 10% from 8% in the year ended August 31, 2002.
- Consumer drinking water market - The quarterly revenue in the consumer
market was $1.4 million compared to $1.8 million during the four-month
period ended December 31, 2002.
For the full year, revenues were $5.8 million compared to $5.5 million
in the twelve months ended August 31, 2002. The percentage of total
revenue from the consumer market was 5% compared to 6% in the year
ended August 31, 2002.
For the three months ended December 31, 2003, gross margin was 37% compared to 41% in the four months ended December 31, 2002. For the year, gross margin was 37% compared to 44% for the year ended August 31, 2002. The Company"s objective is to earn gross margins of 40% in the aggregate. There are number of factors that have contributed to the decline in gross margin in 2003:
- Less revenue from large projects, on which we traditionally earn stronger margins. In 2002, the Company recognized $17.9 million from larger projects compared to $8.2 million in 2003.
- Lower margins in drinking water, in part attributable to additional costs associated with taking new products to market.
- Pricing pressures, particularly in European and International markets.
- Additional start up and warranty costs. The Company has made progress in recent years in improving its processes around quality, including demanding and receiving even higher standards from its suppliers. Despite its best efforts, and reflecting the risks associated with leading technology products, there are performance issues that arise unexpectedly that must be dealt with quickly to ensure the satisfaction of our customers. Additional provisions of $2.4 million taken in the quarter ended September 30, 2003 magnified these issues.
Administration, Selling and Research and Development Expenses
The Company"s objective is to reduce operating expenses, excluding amortization, to less than 30% of revenue. In the three months ended December 31, 2003, administration, selling and research and development expenses were $8.6 million or 30% of revenue, compared to $11.6 million or 37% of revenue in the four months ended December 31, 2002.
During the quarter, sales commissions paid were $1.5 million or 5% of revenue, compared to $1.3 million or 4% of revenue in the four months ended December 31, 2002. Sales commissions are paid primarily in the municipal wastewater and drinking water markets. The increase in commissions is consistent with the growth in these businesses.
Selling and marketing expenses in the quarter were $3.5 million or 12% of revenue, compared to $5.1 million or 16% of revenue in the four months ended December 31, 2002. Selling and marketing costs are generally fixed costs rather than variable with revenue, and the Company has been able to maintain costs despite the increase in business volume.
Administration expenses were $2.6 million in the three-month period or 9% of revenue compared to $3.5 million or 11% of revenue in the four months ended December 31, 2002. Like selling and marketing costs, general and administrative costs are generally fixed, and the Company has been able to derive the benefits of economies of scale.
Research and development expenses were $1.0 million or 4% of revenue for the three-months compared to $1.6 million or 5% of revenue four months ended December 31, 2002. The research and development efforts are directed at both product and technology development. During the year Trojan focused on two important initiatives; further development of Trojan"s range of drinking water products and development of large systems for the environmental contaminant treatment market.
Liquidity and Capital Resources
At December 31, 2003, net cash on hand, including marketable securities, was $16.6 million compared to $5.7 million at December 31, 2002. Cash generated from operating activities for the quarter was $2.3 million compared to $0.6 million for the four months ended December 31, 2002. The improvement in cash flow is attributable to improved profitability and working capital ratios.
The Company"s capital position is strong with long-term debt of $4.9 million and shareholders" equity of $78.4 million. During the quarter, the Company was advanced an additional term loan of US$2.0 million (CA$2.7 million) with an effective interest rate for the first 12 months of 3.94%. These funds were borrowed as part of the financing required for the acquisition of the interest in US Peroxide that closed in early January 2004. The funds were borrowed in US dollars to mitigate the currency risk associated with this acquisition.
During the quarter, the Company acquired an additional 341,800 common shares at an average cost of $7.03 pursuant to its Normal Course Issuer Bid ("NCIB"). The Company is permitted to acquire up to 5% of its common shares under the NCIB, and has purchased shares in the open market when it believes it to be a good use of funds. Since June 2003, when the plan was approved by the TSX, the Company has acquired 501,400 shares representing 2.3% of the outstanding shares as at December 31, 2003.
A conference call and webcast will be held for investors, analysts and media at 2.30 pm EST on March 3, 2004. Marvin Devries, President & CEO, and Douglas Alexander, Executive Vice President and Chief Financial Officer will host the conference call. The phone number to call is (416) 943-8746 or (800) 796-7558. A taped version of the call will be available until midnight Monday, March 10, 2004 by calling (416) 640-1917 or (877) 289-8525 and dialing passcode number 21039759(followed by the number sign). The live webcast and a rebroadcast will be available at www.trojanuv.com.
Trojan Technologies is a Canadian based, high technology environmental Company operating internationally. With over 25 years of experience, Trojan has the largest installed base of UV disinfection systems operating around the world. Trojan designs, manufactures and sells ultraviolet disinfection systems for municipal wastewater, drinking water systems for residential, municipal and commercial use, and industrial systems for food and beverage, pharmaceutical, and semiconductor applications. Its equipment destroys water-borne pathogens such as E.coli, Giardia and Cryptosporidium in a highly effective, cost efficient and environmentally safe manner. Trojan also designs and installs treatment technology for the environmental contaminant and micropollutant destruction market. Trojan 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.
For further information
contact Marvin DeVries, President and CEO
Douglas Alexander, Executive Vice President and CFO
Diana Cunningham, Corporate Communications/Investor Relations, Trojan Technologies, (519) 457-3400, www.trojanuv.com