Trojan Technologies Inc -
Trojan posts six-month revenue loss
Trojan Technologies Inc TUV
Shares issued 16,923,564 2000-04-19 close $6.5
Wednesday Apr 19 2000
Mr. Douglas Alexander reports
Trojan Technologies had an after-tax loss for the second quarter ended Feb. 29, 2000, of $1.7-million, compared with a loss in the prior quarter of $4.1-million after tax and a special charge. On a per share basis, there was a loss of 10 cents compared with a loss of 24 cents for the prior quarter. For the quarter ended Feb. 29, 1999, Trojan had a restated net loss of $96,000 or one cent per common share.
Sales revenue was $12.8-million in the second quarter compared with $16.5-million in the first quarter. This reduction results mainly from the previously announced decision to implement more efficient production scheduling to minimize inventory and design changes by assembling systems closer to the delivery date. This change resulted in a production slowdown and layoffs during the second quarter as planned. In addition, some delays in the expected timing of bid requests indicate a short-term reduction in required production.
Gross margin increased by 3.5 per cent to 28 per cent from 24.5 per cent reported in the first quarter, reflecting some benefits from production schedule changes, improved vendor discounts, product cost reductions and other initiatives. Lower production volumes resulted in unabsorbed overhead of $1.5-million and is the main contributor to a drop in gross margin to $3.6-million, compared with $4.1-million in the prior quarter.
Total expenses were reduced by 24.5 per cent: the largest component was a 38-per-cent decline in selling and admin expenses resulting from lower sales commissions, reduced headcount, and the mitigation of legal costs associated with a settlement of a patent dispute with Calgon Carbon Corporation. Research and development costs fell by $0.3-million compared with first quarter despite cost reduction and design improvement initiatives. However, the company recorded a large expense of $435,000 for product development costs for the UV3000Plus in the first quarter. Interest income reduced as the company used excess cash to reduce short-term indebtedness. Trojan now capitalizes and amortizes the costs of system prototypes and pilot equipment. The amortization of six months worth of these costs led to an increase of $0.3-million in amortization expense. This accounting treatment is part of a series of improvements recommended by external consultants.
For the six months ended Feb. 29, 2000, after tax and a special charge, the net loss was $5.8-million, compared with restated net income of $0.5-million in the first six months of the prior year. On a per share basis, there was a loss of 34 cents compared with earnings of three cents for the same period last year. First half sales were $29.3-million compared with $45.0-million, while gross margins declined to $7.7-million from $15.0-million in the comparable period in fiscal 1999.
At Feb. 29, 2000, the company's working capital position, excluding cash and bank indebtedness, stood at $40.2-million. During the quarter, the company's net cash position declined by $148,000 -- a reflection of the net loss, largely offset by improved working capital management processes. Trojan has used $4.7-million of cash on hand at Nov. 30, 1999, to repay debt during the second quarter.
In addition to the specific improvements noted above, during the quarter, Trojan made substantial progress on the implementation of recommended changes to its financial and operating processes. Enhanced order acquisition and fulfilment, customer support, product development and engineering change management processes have resulted. A performance management system has been installed, supported by improved management information systems.
The company previously announced plans to improve gross margin and reduce expenses by $10-million in fiscal 2000. To date, work force reductions, improved vendor discounts, product cost reductions and other initiatives have captured savings of about $4-million. One of the benefits has been the achievement of lower design and manufacturing costs for the Systems UV4000 and UV3000Plus which will contribute to improved margins and ultimately, revenue growth in the coming quarters.
In the second quarter, Trojan launched a new drinking water product line, TrojanUVMax, at the Water Quality Association Show in Long Beach, Calif. This new line of high-performance residential and commercial UV water disinfection systems uses leading-edge UV technology to kill viruses, bacteria and pathogens in drinking water faster and more effectively than any other system today. Applications for the system include residential and commercial markets such as rural homes and cottages, hospitals, restaurants, and nursing homes.
The company's new municipal drinking water product will be introduced in Denver, Colo., at the American Water Works Association Show in June. This new UV disinfection technology is designed to safely and effectively treat public drinking water supplies. Changes under consideration to U.S. regulations will, if adopted, give Trojan's technology the potential for being specified and sold into North American municipal drinking water plants, a totally new market opportunity.
Other developments
In April, Trojan announced the successful conclusion of its patent dispute with Calgon Carbon Corporation and Calgon Carbon Canada. The agreement, under which Calgon will immediately terminate the sale and manufacture of its competing UV disinfection system, mitigates the impact of litigation expenses this fiscal year and allows the company to focus on the growth of its System UV4000 business domestically and internationally.
The board of directors of Trojan is delighted to announce the appointment of George Taylor as a director of the corporation. Mr. Taylor assumes the chair of the audit committee of the board of directors.
Mr. Taylor has held senior level positions with John Labatt Limited including vice-president, finance, executive vice-president and president and chief executive officer. Mr. Taylor's 38-year relationship with the company concluded in Dec. 31, 1998, following the purchase of the company by Interbrew S.A. in 1995. Mr. Taylor is an active member of several listed companies including EdperBrascan Limited, Great Lakes Power Inc. and United Dominion Industries Limited. Mr. Taylor is also a member of the board of the Toronto Blue Jays Baseball Club, the Stratford Festival, the John P. Robarts Research Institute and London Health Sciences Centre Research Inc.
The board of directors also announces the resignation of Jan Maarschalkerweerd from the board of the corporation. Mr. Maarschalkerweerd was the vice-president of research and development for Trojan until November, 1997. He was instrumental in the development of the open-channel module design of Trojan's UV disinfection systems and played a key role in the growth of the company since its early beginnings. Mr. Maarschalkerweerd will continue as a member of the research and development committee and is president of Abuma Manufacturing in which Trojan has 49-per-cent ownership.
Outlook
While the company's share of the growing UV wastewater treatment market exceeds 70 per cent, the bidding period for some larger projects has lengthened in recent months delaying production and delivery to fiscal 2001. The impact of these system installation delays will mean that full year 2000 sales are estimated to total in excess of $75-million. This will require the company to produce in excess of $45-million in the second half of this fiscal year, restoring production to the same level as the second half for fiscal 1999. Improvements in performance management and the implementation of the cost reduction initiatives are expected to result in a return to profitability in the fourth quarter of fiscal 2000.
CONSOLIDATED STATEMENT OF INCOME
(thousands of dollars)
Six months Six months
ended ended
02/29/00 02/28/99
Sales $ 29,299.5 $ 44,980.3
Cost of goods
sold 21,619.8 29,990.8
---------- ----------
Gross margin 7,679.7 14,989.5
---------- ----------
Expenses
Administrative
and
selling
expenses 8,805.7 11,694.8
Research and
development 3,923.8 2,401.6
Less tax credits
and grants (400.0) (350.0)
Interest on
long-term
debt 213.6 243.4
Interest and bank
charges 753.7 653.1
Amortization 1,750.1 1,111.2
---------- ----------
15,047.0 15,754.1
---------- ----------
Operating
income
(loss) (7,367.3) (764.6)
Other income
Interest income 153.2 554.7
Income from equity
investment 300.0 650.0
---------- ----------
Income (loss)
before special
charge and
income taxes (6,914.1) 440.1
Special charge 2,500.0 -
Current income
taxes (1,640.0) (80.8)
Future income
taxes (1,960.0) -
---------- ----------
Net income
(loss) $ (5,814.1) $ 520.9
========== ==========
Earnings (loss)
per share (0.34) 0.03
CONSOLIDATED STATEMENT OF INCOME
(thousands of dollars)
Three months Three months
ended ended
02/29/00 02/28/99
Sales $ 12,806.9 $ 22,162.2
Cost of goods
sold 9,201.4 15,479.2
---------- ----------
Gross margin 3,605.5 6,683.0
---------- ----------
Expenses
Administrative
and
selling
expenses 3,368.7 5,625.1
Research and
development 1,819.0 1,390.5
Less tax credits
and grants (200.0) (140.0)
Interest on
long-term
debt 106.6 114.7
Interest and bank
charges 342.5 124.0
Amortization 1,037.8 633.1
---------- ----------
6,474.7 7,747.4
---------- ----------
Operating
income
(loss) (2,869.2) (1,064.4)
Other income
Interest income 33.3 258.6
Income from equity
investment 150.0 400.0
---------- ----------
Income (loss)
before special
charge and
income taxes (2,685.9) (405.8)
Special charge - -
Current income
taxes (292.0) (310.2)
Future income
taxes (660.0) -
---------- ----------
Net income
(loss) $ (1,733.9) $ (95.6)
========== ==========
Earnings (loss)
per share (0.10) (0.01)
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