ZENON Reports Second Quarter Results
OAKVILLE, ONTARIO--A combination of strategic growth investments,
weaker bookings, extended delivery times and longer sales cycles
reduced earnings in the second quarter of 2000, ZENON
Environmental Inc. announced today.
Financial Highlights
For the three and six months ended June 30:
Three months Six Months
2000 1999 2000 1999
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($000s)
Revenue 16,230 25,009 32,206 45,451
Net Earnings (2,945) 1,446 (4,562) 1,129
Net Earnings/Share (0.12) 0.06 (0.19) 0.05
Although revenues for the quarter were disappointing, the Company
increased its backlog of orders to $70.7 million, a 37% increase
from the end of the first quarter of $51.5 million and a 16%
increase from June 30, 1999 level of $61.2 million.
"This strong growth in backlog is an indication of an upward trend
in the demand for ZENON's membrane based technology," said Dr.
Andrew Benedek. "After a weaker than expected second quarter, we
have won contracts in both the municipal as well as the industrial
sectors, in addition to making significant progress
internationally. As markets open up, ZENON's superior technology
will increasingly drive sales."
Since the end of the second quarter, the Company has announced new
orders in excess of $20 million, which will increase the order
backlog to record-breaking levels.
Revenue for the three months ended June 30, 2000 was $16.2 million
compared with $25 million in the second quarter of 1999.
As a result, the Company posted a net loss for the quarter of $2.9
million or $0.12 per share, down from a net profit of $1.4 million
or $0.06 per share in the second quarter of last year.
For the six months ended June 30, 2000, revenue was $32.2 million,
compared with $45.5 million in the same period of 1999. Gross
margin of 42.2% was up from last year's six-month period of 34.7%.
To position the Company for future growth, ZENON made strategic
investments that resulted in selling, general and administrative
(SG&A) expenses increasing to $15.8 million from $12.4 million in
the same period last year.
Foremost among the investments was putting in place the
infrastructure required to increase the sales, bidding and design
capabilities of the Company and position it for the expanding
global market. Also included in SG&A is $1.1 million in legal fees
to date involving the violation by OTV, a division of Vivendi
Inc., of a technology sharing and licensing agreement. On the
advice of counsel, the Company is continuing to pursue this
matter, currently in arbitration in the United Kingdom.
Construction of the Company's new headquarters in Oakville and the
purchase of the previously leased membrane manufacturing facility
in Burlington resulted in higher interest costs and amortization
expense, which together are $1.2 million above the same six-month
period last year.
North American Operations
Municipal
Activity in the Municipal market sector has started to open up
significantly since the latter part of the quarter with a number
of new orders being received in July for both drinking and waste
water treatment.
* ZENON was successful in securing a $4 million contract for the
largest membrane bioreactor wastewater treatment plant in the U.S.
Upon completion, the wastewater plant in California's Napa Valley
will be able to process up to 5 million gallons of wastewater per
day.
* ZENON's first contract in West Virginia was a $6 million order
for a drinking water plant to replace the existing conventional
water treatment plant. This move further confirms the switch from
conventional systems to membrane based technology.
* Orders for ZENON's Cycle-Let (R) and ZenoGem (R) units continued
throughout the quarter for the Land Development department. North
American sales for these smaller units that treat advanced
wastewater or for water reuse totalled approximately $3 million,
doubling last year's sales.
In addition to supplying its ZeeWeed (R) technology to
municipalities, the second quarter has shown an increase in repeat
orders for ZENON's membrane systems. As municipalities are
expanding, the need to enlarge their existing ZeeWeed (R) water
treatment plants is also increasing, creating greater demand for
ZENON membranes.
For example, repeat orders have been obtained from Collingwood,
Ontario, to increase capacity at their drinking water plant, as
well as Anthem, Arizona, where ZENON membranes will be used for
the second phase expansion of their drinking and waste water
treatment plants. Thus, with every ZeeWeed (R) plant being
installed, a greater opportunity is created for ZENON to benefit
from the sale of repeat membrane orders.
The number of pilot plants currently in the field in North America
has increased to 35. As a result of ZENON's piloting in the U.S.,
the Company has obtained the required State Certification that
will allow it to sell its systems without further approvals
throughout the country, indicating further acceptance of its
membrane technology.
Public confidence in municipal water treatment systems has been
eroded significantly in light of recent events involving the
contamination of drinking water supplies in Ontario as well as
other provinces and communities worldwide. These incidents have
served to heighten awareness of water quality issues, all of which
will present a major business opportunity in the future for
ZENON's membrane based technologies, which form a physical barrier
to water contaminants ensuring the highest quality water
available.
At the heart of this issue in Ontario is the fact that
municipalities are awaiting government funding, which will allow
them to either update their conventional water treatment
facilities or build new ones. Once this government assistance is
in place, ZENON will be strongly positioned as a supplier of its
state-of-the-art membrane technology that will provide safe
drinking water and peace of mind.
Industrial
After a slow first quarter with respect to sales, the Industrial
division is on the move with significant orders in the second
quarter.
* Inroads have been made for ZENON products with orders in excess
of $11 million for boiler feed water systems. The largest was for
the Athabasca Oil Sands project in Alberta. This joint venture of
Shell Canada, Chevron Canada and Western Oil Sands LP is the
second order ZENON has received to provide its technology for
industrial applications.
* ZENON will supply an oil refinery in Mexico with an
ultrafiltration wastewater treatment system that will allow the
facility to either reuse the treated water or discharge it into
the environment. The contract, valued at $9 million, was signed
during the quarter and included in the reported backlog.
International Operations
The slow first half was also true for the Company's international
offices. However, European sales activity continued for ZENON's
products, particularly for industrial applications, with orders
totalling nearly $7 million. Of significance is the fact that all
represented new geographical installations for ZENON, including
the first order in Ireland for a leading international
pharmaceutical company, four wastewater treatment contracts in
France, and a new sewage treatment plant in Belgium.
Through the Company's Hungary office, ZENON was successful in
securing a $12 million municipal contract in the Middle East to
supply its ZeeWeed (R) membrane system to a new wastewater
treatment plant. Also, orders were received to supply the
Hungarian military with ZENON's rapid deployment units.
The Company's newly opened office in Asia obtained the first
orders in Malaysia and Taiwan to supply the ZenoGem (R) wastewater
treatment system to three multinational manufacturing firms. As
well, ZENON's licensee in Australia, Rolls-Royce Australia Ltd.,
secured a contract for water treatment projects in Australia using
ZeeWeed (R) membrane technology.
ZENON will hold a conference call to answer questions related to
issues addressed in this release on Monday, August 21, 2000 at
11:00 a.m. (EST). To participate in the call, please dial
416-641-6705 five minutes prior to the 11:00 a.m. start. If you
are unable to participate in the call at the scheduled time, you
may listenn to a replay by dialling 416-626-4100 then entering
Reservation Number 16098895. This service will be available
through August 28, 2000.
ZENON is a world leader in providing advanced membrane products
and services for water purification, wastewater treatment and
water reuse. The ZENON group of companies operates from seven
locations in North America, six in Europe, and one in each of
Asia, Latin America, and the Middle East.
ZENON's products and services are marketed for a variety of
municipal and industrial applications through ZENON's offices and
representatives located worldwide. Additional information is
available at the company's web site www.zenonenv.com.
ZENON Environmental Inc.
Consolidated Balance Sheet (Unaudited)
As at June 30
2000 1999
(All figures in $000's)
ASSETS
Current Assets
Cash and cash equivalents 5,110 18,933
Accounts receivable 18,101 22,723
Unbilled revenue 28,801 14,621
Inventories 8,950 11,464
Prepaid expenses and deposits 2,020 895
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Total current assets 62,982 68,636
Capital assets, net 39,154 16,836
Patents, goodwill and other assets 12,738 10,690
Loans receivable 1,320 2,980
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Total assets 116,194 99,142
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Liabilities and Shareholders' Equity
Current
Bank indebtedness 19,809 2,479
Accounts payable and accrued liabilities 17,358 17,997
Current portion of long-term debt 125 1,580
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Total current liabilities 37,292 22,056
Long-term debt 10,183 2,318
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Total liabilities 47,475 24,374
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Shareholders' equity
Capital stock 71,253 70,904
Share purchase loan receivable (585) -
Retained earnings 837 5,204
Unrealized translation adjustment (2,786) (1,340)
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Total shareholders' equity 68,719 74,768
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116,194 99,142
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ZENON Environmental Inc.
Consolidated Statements of Earnings
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For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(All figures in $000's)
Revenue 16,230 25,009 32,206 45,451
Cost of sales
and services 9,759 16,537 18,615 29,680
------- ----- ------- ------
Gross profit 6,471 8,472 13,591 15,771
------- ----- ------- ------
Expenses
Selling, general and
administrative 8,531 5,886 15,794 12,387
Depreciation and
amortization 1,415 1,092 2,852 2,101
Net interest 305 29 569 79
------- ----- ------- -----
10,251 7,007 19,215 14,567
------- ----- ------- -----
Earnings before
income taxes (3,780) 1,465 (5,624) 1,204
Provision for
income taxes (835) 19 (1,062) 75
------- ----- ------- -----
Net earnings for
the period (2,945) 1,446 (4,562) 1,129
------- ----- ------- -----
------- ----- ------- -----
Net earnings per share: (0.12) 0.06 (0.19) 0.05
ZENON Environmental Inc.
Consolidated Statements of Retained Earnings (Unaudited)
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For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(All figures in $000's)
Retained earnings -
beginning of period 3,622 3,778 5,439 4,115
Net earnings for
the period (2,945) 1,446 (4,562) 1,129
Dividends on
preference shares (20) (20) (40) (40)
Adjustment to carrying
value of share
purchase loan 180 - - -
------ ------ ----- ------
Retained earnings - end
of period 837 5,204 837 5,204
------ ------ ----- ------
ZENON Environmental Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months ended June 30
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2000 1999
(All figures in $000's)
Cash provided by (used) in:
Operating Activities
Net earnings for the period (4,562) 1,129
Items not affecting cash -
Depreciation and amortization 2,852 2,101
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(1,710) 3,230
Net change in non-cash working capital items (5,469) (8,039)
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Cash used in operating activities (7,179) (4,809)
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Financing Activities
Stock options exercised 462 441
Issue of Class A shares - 18,734
Increase in bank indebtedness 19,809 -
Proceeds from long-term debt 2,530 -
Decreses in capital leases (51) (1,075)
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Cash from financing activities 22,750 18,100
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Investing Activities
Purchase of capital assets (12,247) (7,121)
Proceeds on disposal of capital assets 44 86
Increase in patents, goodwill and other assets (828) (175)
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Cash used in investing activities (13,031) (7,210)
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Effect of exchange rate changes on cash (433) (412)
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Increase in cash during the period 2,107 5,669
Cash position , beginning of the period 3,003 10,785
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Cash position, end of period 5,110 16,454
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Supplementary information
Cash taxes paid 215 16
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Cash interest paid 803 384
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ZENON Environmental Inc.
Segmented information For the six months ended June 30, 2000 and
1999
The Company operates in Canada, United States, Europe and the
Middle East, in the water treatment industry. Its reportable
operating segments are strategic business units that offer
membrane based systems for water and wastewater treatment.
Operations and identifiable assets by industry segment and
geographic region for the identified six month periods ended June
30 are presented below.
Operating Segments
Technology, North European East
Membranes and American and Middle
Corporate Systems Systems Total Total
($000's) 2000 1999 2000 1999 2000 1999 2000 1999
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Revenue from
external
customers 1,179 1,350 23,035 23,685 7,992 20,416 32,206 45,451
Intersegment
revenue 6,840 5,569 - 1,776 - - 6,840 7,345
Amortization of
capital assets
and goodwill 1,129 843 1,248 906 475 352 2,852 2,101
Segment profit
(loss)before
interest and
taxes 1,227 3,370 (4,092) (2,643) (2,190) 862 (5,055) 1,589
Total assets 90,906 78,212 20,414 13,599 4,874 7,331 116,194 99,142
Capital assets and
goodwill
expenditures 8,946 5,508 3,511 215 574 1,487 13,031 7,210
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Reconciliation of Earnings 2000 1999
($000's) ----- ------
Total income for reportable segments (5,055) 1,589
Elimination of intersegment profit - (306)
Net interest (569) (79)
Provision for income taxes 1,062 (75)
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Net earnings for the period (4,562) 1,129
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Additional
Information Canada United States Europe and
Middle East Total Total
($000's) 2000 1999 2000 1999 2000 1999 2000 1999
-----------------------------------------------------------
Revenue 20,105 21,599 4,109 3,436 7,992 20,416 32,206 45,451
Capital
assets
and
goodwill 47,225 22,286 1,045 1,204 3,622 4,036 51,892 27,526
ZENON Environmental Inc.
ADDITIONAL INFORMATION AT JUNE 30, 2000
New Tax Accounting
Effective January 1, 2000 the Company changed its method of
accounting for Income Taxes from the deferral method to the
liability method of tax allocation as required by the Canadian
Institute of Chartered Accountants' Section 3465, Accounting for
income taxes. As permitted under the new rules, prior-year
financial statements have not been restated. This accounting
change has no impact on opening retained earnings at January 1,
2000.
Capital stock
2000 1999
$ (000's) $
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Authorized
300,000, 2% cumulative,redeemable,
convertible, voting Series I preference
shares
Unlimited non-voting convertible,
participating Class A shares
Unlimited number of common shares
Issued
300,000 Series I preference shares 4,000 4,000
3,900,000 (1999 - 3,900,000) Class A shares 47,859 47,859
19,732,830 (1999 - 19,618,492) common shares 19,394 19,045
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71,253 70,904
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The Class A shares are convertible into common shares on a
share-for-share basis on June 10, 2008. The Series 1 preference
shares are redeemable at $13.33 per share plus any unpaid
dividends. The Series 1 preference shares are convertible into
common shares at any time after September 23, 2000 at a conversion
price equal to the weighted average trading price for the common
shares during the five trading day period immediately prior to
conversion.
As at June 30, 2000, the Company has outstanding stock options for
1,336,674 common shares of which 870,224 are vested and 240,800
Class A non-voting shares outstanding of which 64,160 are vested.
FOR FURTHER INFORMATION PLEASE CONTACT:
ZENON Environmental Inc.
David V.M. Hull, Senior Vice President, Finance
& Chief Financial Officer
(905) 465-3030
or
ZENON Environmental Inc.
Nazeli Seferian
Corporate Communications & Investor Relations
(905) 465-3030 |
