Trojan Technologies Announces Second Quarter Results; Strong Revenue Growth And Improved Margins Drive Return To Profitability
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LONDON, ONTARIO--Trojan Technologies Inc. (TSE/TUV) today announced its financial and operating results for the six-month period ended February 28, 2002.
"I am delighted that Trojan Technologies has returned to profitability", said Allan Bulckaert, President and
Chief Executive Officer of Trojan Technologies Inc. "Our revenue growth together with an emphasis on quality and cost control is reflected in dramatically improved results. We are also enjoying success in the marketplace - all of our businesses are delivering growth in revenues."
Highlights include:
For the six months ended February 28, 2002, revenues grew 24% to $41.3 million from $33.3 million in the
prior year. Revenue for the quarter was $22.7 million; an increase of 52% compared to $14.9 million in the second quarter of fiscal 2001.
Consolidated gross margin for the six-month period increased to 39.7% or $16.4 million compared to 36.0% or $12.0 million in the prior year. Consolidated gross margin for the quarter increased to 42.1% or $9.6 million from 35.6% or $5.3 million in comparison to the same quarter last year.
On a year-to-date basis, earnings before interest, taxes, amortization and income from equity investment
amounted to $2.9 million compared to $94,300 in fiscal 2001. For the quarter, the earnings amounted to $2.4 million compared to a loss of $0.2 million in the same quarter last year.
For the six-month period, the net income after tax was $0.7 million as compared to a loss of $1.5 million in
the prior year. On a per share basis, the Company reported earnings per share of $0.04 compared to a loss of $0.09 per share in the last fiscal year. For the second quarter, Trojan reported net income after tax of $1.1 million
compared to a loss of $0.9 million in the same quarter last year. On a per share basis, the company reported net
earnings of $0.06 compared to a loss of $0.05 per share last year.
Revenues are growing in all business segments. Revenue in the Municipal Wastewater market grew by 9%, and all of the faster growth market segments showed encouraging year over year growth. The Company continues to make excellent progress in developing its presence in the Environmental Contaminant treatment market.
"Our six-month results are very encouraging. Having reported losses for three years, I am very pleased to see the efforts of our staff and the patience of our shareholders being rewarded with much improved performance." said Allan Bulckaert, President and Chief Executive Officer of Trojan Technologies Inc. "Our order backlog is in excess of $40 million and we are enjoying success in penetrating growth markets. Following the successful completion of our equity issue, our financial fundamentals are strong and we are well positioned to win in the market. "
More details about Trojan Technologies financial performance are contained in the following Report to
Shareholders.
Report to Shareholders for the Six Months ended February 28, 2002
President's Message
To Our Shareholders
During the second quarter, Trojan Technologies returned to profitability. This is a significant milestone. Our
revenue growth together with an emphasis on quality and cost control is reflected in dramatically improved results. We are also enjoying success in the marketplace - all of our businesses are delivering growth in revenues. At the beginning of this year, I set out four objectives that would establish a solid foundation upon which we would build value for all our stakeholders.
Our first objective is to execute our plans to grow revenues this year in excess of 15%. In addition we are
committed to establishing the platform to deliver long-term growth of closer to 30% per annum. On a year to date basis our revenues have grown by 24%. As expected, growth in our core wastewater business is running at approximately 9%, but we are experiencing solid growth in our other businesses. There are significant growth opportunities in our four other market segments and I am encouraged by developments during the quarter. As well as success in North America, we have made good progress in both Europe and Asia
Second, we must ensure we continue to supply the right products by expanding our technology leadership and actively pursuing the acquisition of complementary technologies. The markets in both Europe and North America are requiring products to be validated by recognized 3rd party regulatory bodies such as NSF or NWRI in North America or DVGW in Europe. We have made good progress during the last three months meeting the needs of these validation processes. Our research team continues to develop enhancements to our existing product line that we anticipate will be well received in the market.
Our third objective is to translate revenue growth into profits by delivering after tax earnings this year in
the range of 4% to 5% of revenue. Our revenue growth in the quarter has confirmed our ability to deliver profits when we attain reasonable production levels. With our order backlog in place, much of it requiring delivery in the current fiscal year, I anticipate that revenues will continue to be at levels to meet our profitability targets.
Finally, I have made good progress in further developing management and performance measurement processes to ensure we achieve our plans.
Our financial position is very much improved. Since September 1, 2001, shareholders' Equity has increased by over $20 million from a combination of our successful equity issue, shares issued to acquire Pureflow Ultraviolet Inc. and from earnings. In addition, our business continues to be cash flow positive and during the quarter we were able to retire all of our short-term indebtedness.
Outlook
Our six-month results are very encouraging. Having reported losses for three years, I am very pleased to see
the efforts of our staff and the patience of our shareholders being rewarded with much improved performance. Our
order backlog is in excess of $40 million and we are enjoying success in penetrating growth markets. Following the successful completion of our equity issue, our financial fundamentals are strong and we are well positioned to win in the market and to achieve our objectives for the current year.
-----------------------------
Allan Bulckaert
President and Chief Executive Officer
April 2, 2002
Financial Analysis of Results
For the six months ended February 28, 2002, revenues grew 24% from $33.3 million in the prior year to $41.3
million. Revenue for the quarter was $22.7 million; an increase of 52% compared to $14.9 million in the second
quarter of fiscal 2001. On a year-to-date basis, earnings before interest, taxes, amortization and income from equity investment amounted to $2,870,400 compared to $94,300 in fiscal 2001. For the quarter, the earnings amounted to $2,374,700 compared to a loss of $177,200 in the same quarter last year.
For the second quarter, Trojan reported net income after tax of $1,143,400 compared to an $881,600 loss in the same quarter last year. On a per share basis, the company reported net earnings of $0.06 compared to a loss of $0.05 per share last year. For the six-month period, the net income after tax was $731,000 million as compared to a loss of $1,471,200 million in the prior year. On a per share basis, the Company reported earnings per share of $0.04 compared to a loss of $0.09 per share in last fiscal year.
Analysis by Market
Production in all business segments has increased over the prior year. In addition to growth in the core
wastewater business, revenue has grown in all other segments as the Company implements its strategy to further
penetrate each of these exciting market opportunities and, by focussed efforts, grow each of these businesses to
critical mass. Results by segment are as follows:
Municipal wastewater disinfection revenue was $31.4 million, compared to $28.8 million last year. Revenue
from after market sales and service increased by over $3 million to $7.5 million. Production revenue was particularly strong in the quarter, more than 50% ahead of last year, reflecting the Company's large order backlog in the municipal market.
Municipal drinking water disinfection revenue was $1.7 million compared to zero last year. The demand for
Ultraviolet disinfection solutions continues to be very strong in North America as municipalities move toward
implementation of multi barrier approaches to disinfection strategy. In the first six months of the year, Trojan has
bid on more projects than in all of fiscal 2001.
Environmental Contaminant treatment revenue was $1.8 million. This is a new market segment for Trojan;
accelerated market entry was achieved through the acquisition of Advanced Ultraviolet Solutions in March 2001. Trojan has recently been recommended for selection on a large project in Orange County, California. If awarded at the bid value of approximately $15 million, this will bring the total of contracts awarded to over $20 million since AUVS was acquired.
Industrial and commercial revenue, increased to $4.2 million from $2.6 million. The segment continues to show strong year over year growth resulting from the efforts to build distribution and leverage the acquisition of Pureflow Ultraviolet Inc. completed in September 2001.
Residential market revenue was $2.2 million compared to $1.9 million last year. Revenue growth in the
second quarter was particularly strong increasing by 59% year over year as a result of good response to a winter sales promotion for distributors.
Gross Margin
Consolidated gross margin for the six-month period increased to 39.7% or $16.4 million compared to 36.0% or $12.0 million in the prior year reflecting the implementation of the cost reduction and process improvement program. Consolidated gross margin for the quarter increased to 42.1% or $9.6 million from 35.6% or $5.3 million in comparison to the same quarter last year. Gross margin benefited from increased production volumes that permitted manufacturing overheads to be spread over a larger business base.
Operating Expenses
Quarterly operating expenses, specifically administrative, selling and net research and development costs,
increased over fiscal 2001 from $5.5 million or 36.8% of sales to $7.2 million or 31.6% of sales. On a year-to-date basis, operating expenses were $13.5 million or 32.8% of sales as compared to $11.9 million or 35.7% of sales last year. The increase in expenses is in part attributable to increased commissions and selling costs as a result of higher revenues. Other general and administrative costs were also higher caused by insurance costs, reflecting higher market rates as well as expanded cover following a comprehensive review, and increased staff costs.
Liquidity and Capital Resources
The Company's net cash position improved significantly during the quarter reflecting the return to
profitability, continuing careful management of working capital and the successful completion of the Company's equity issue. Cash on hand at February 28, 2002 was $2 million compared to net indebtedness of $15.1 million at the end of the prior fiscal year in August 2001.
Cash flow from operations for the quarter was $2.1 million compared to an outflow of $1.7 million in the prior
year. In addition to the improvement generated by the return to profitability, the Company's tax expense does not
require the payment of cash taxes because of the availability of tax loss carryforwards. For the six-month period,
cash flow from operations was $3.2 million compared to $3.8 million in the prior year. Cash used in investment
activities declined to $0.6 million from $1.2 million because of reduced capital expenditures.
During the quarter, Trojan completed the issue and sale of 2,110,000 units for gross proceeds of $15.8 million. Each unit consists of one common share and one-half of one warrant to purchase an additional common share within 18 months at an exercise price of $8.25. The net proceeds of the sale of the common shares were used to repay in full the borrowings drawn under the Company's operating credit facility. The issue of shares increased the capital of the Company to approximately 19.7 million shares, and if all warrants are exercised, approximately 20.8 million shares.
A conference call will be held for investors, analysts and media at 4:30pm EST on April 2, 2002. The conference call will be hosted by Allan Bulckaert, President & CEO, and will include Douglas Alexander, Chief Financial Officer and Marvin DeVries, Executive Vice President. The phone number to call is (416) 695-5806 or (800) 273-9672. A taped version of the call will be available until midnight Tuesday, April 9, 2002 by calling (416) 695-5800 or 1-800-408-3053 and dialling passcode number 1113609.
Trojan Technologies is a Canadian based, high technology environmental company operating internationally. With more than 20 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. Trojan also designs and installs treatment technology for the environmental contaminant and micropollutant destruction market.
This document contains certain statements that are forward-looking relative to the company's future strategy
and performance. They involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from any future performance suggested in this document. Further, the Company operates in an industry where it may be influenced by economic and other factors beyond the Company's control.
TROJAN TECHNOLOGIES INC.
FINANCIAL HIGHLIGHTS
(in thousands of dollars)
For the six months For the three months
(unaudited) ended ended
----------------------------------------------
February February February February
28 2002 28 2001 28 2002 28 2001
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Revenue $ 41,294.7 $ 33,337.9 $ 22,738.5 $ 14,919.4
Earnings before
interest, taxes,
amortization and
income from equity
investment $ 2,870.4 $ 94.3 $ 2,374.7 $ (177.2)
Net earnings (loss) $ 731.0 $(1,471.2) $ 1,143.4 $ (881.6)
Earnings per share
(in dollars)
Basic $ 0.04 $ (0.09) $ 0.06 $ (0.05)
Fully diluted $ 0.04 $ (0.09) $ 0.06 $ (0.05)
Number of shares
Basic 18,462.4 17,168.4 19,382.3 17,168.4
Fully diluted 18,558.0 17,175.8 19,447.3 17,186.2
TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
(unaudited)
For the six months For the three months
ended ended
---------------------------------------------------------------------
February 28 February 28 February 28 February 28
2002 2001 2002 2001
---------------------------------------------------------------------
REVENUE $ 41,294.7 $ 33,337.9 $ 22,738.5 $ 14,919.4
Cost of goods sold 24,891.4 21,328.5 13,171.7 9,608.9
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Gross Margin 16,403.3 12,009.4 9,566.8 5,310.5
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EXPENSES
Administrative and
selling expenses 11,658.5 10,123.3 6,267.9 4,625.1
Research and
development 1,874.4 1,791.8 924.2 862.6
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13,532.9 11,915.1 7,192.1 5,487.7
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Earnings (loss)
before interest,
taxes,
amortization,
income from equity
investment 2,870.4 94.3 2,374.7 (177.2)
Other expenses
(income)
Interest on
long-term debt 261.5 130.2 139.9 61.5
Interest and bank
charges 438.7 799.4 98.2 351.7
Amortization 1,381.6 1,537.2 680.7 772.8
Interest income (14.3) (61.3) (4.4) (26.6)
Income from equity
investment (255.0) (390.0) (160.0) (195.0)
---------------------------------------------------------------------
Operating earnings
(loss) 1,058.0 (1,921.2) 1,620.4 (1,141.6)
Income taxes -
current 56.0 85.0 26.0 34.0
Income taxes -
future 271.0 (535.0) 451.0 (294.0)
---------------------------------------------------------------------
Net earnings
(loss) 731.0 (1,471.2) 1,143.4 (881.6)
Retained earnings
(deficit),
beginning of
period (1,919.2) 3,190.1 (2,331.6) 2,600.5
Share issue costs,
net of taxes (892.0) -- (892.0) --
Retained earnings
(deficit), end of
period (2,080.2) 1,718.9 (2,080.2) 1,718.9
---------------------------------------------------------------------
Earnings (loss)
per share (in
dollars)
Basic and fully
diluted 0.04 (0.09) 0.06 (0.05)
---------------------------------------------------------------------
Number of shares
(in thousands)
Basic 18,462.4 17,168.4 19,382.3 17,168.4
Fully diluted 18,558.0 17,175.8 19,447.3 17,186.2
---------------------------------------------------------------------
See accompanying
notes
TROJAN TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
February 28 August 31
2002 2001
---------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 2,007.1 $ 977.8
Accounts receivable 25,049.5 25,419.0
Accounts receivable -
government funding 356.6 -
Accrued revenue on contracts in
progress (net of progress
payments of $11,799.6;
$13,212.8 at August 31) 10,073.9 8,790.4
Inventory 10,347.3 10,920.2
Prepaid expenses 541.6 331.5
Income taxes receivable 695.8 771.1
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Total current assets 49,071.8 47,210.0
Investments in other company 1,752.1 1,497.1
Investment tax credits
recoverable 4,889.7 4,628.0
Future income taxes 3,277.4 3,208.1
Capital assets 21,625.0 22,316.8
Patents, trademarks and
licenses 1,385.7 1,367.1
Goodwill 5,023.5 953.5
---------------------------------------------------------------------
$ 87,025.2 $ 81,180.6
---------------------------------------------------------------------
---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Bank indebtedness $ - $ 16,046.6
Accounts payable and accrued
charges 14,996.2 13,736.5
Current portion of
long-term debt 1,532.5 1,493.1
---------------------------------------------------------------------
Total current liabilities 16,528.7 31,276.2
---------------------------------------------------------------------
Long-term debt 6,340.7 7,266.1
---------------------------------------------------------------------
Deferred technology credit 1,216.4 -
---------------------------------------------------------------------
Pension obligation 1,200.0 1,200.0
---------------------------------------------------------------------
Shareholders' equity
Share capital 63,819.6 43,357.5
Deficit (2,080.2) (1,919.2)
---------------------------------------------------------------------
61,739.4 41,438.3
---------------------------------------------------------------------
$ 87,025.2 $ 81,180.6
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying
notes
TROJAN TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the six months For the three months
ended ended
---------------------------------------------------------------------
February 28 February 28 February 28 February 28
2002 2001 2002 2001
---------------------------------------------------------------------
OPERATING
ACTIVITIES
Net income (loss) $ 731.0 $ (1,471.2) $ 1,143.4 $ (881.6)
Add (deduct)
charges (credits)
to operations
not involving cash
Amortization 1,381.6 1,537.2 680.7 772.8
Income from equity
investment (255.0) (390.0) (160.0) (195.0)
Future income
taxes 271.0 (535.0) 451.0 (294.0)
Investment tax
credits
recoverable (261.7) (310.0) (121.7) (110.0)
Net change in
non-cash working
capital
balances related
to operations 1,285.6 4,966.1 (132.4) (954.5)
---------------------------------------------------------------------
3,152.5 3,797.1 2,125.8 (1,662.3)
---------------------------------------------------------------------
INVESTMENT
ACTIVITIES
Additions to
capital assets,
net (578.7) (949.3) (383.8) (511.1)
Additions to
patents,
trademarks and
licenses (86.7) (121.8) (31.9) (52.3)
Acquisitions 18.1 (115.2) - -
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(647.3) (1,186.3) (415.7) (563.4)
---------------------------------------------------------------------
FINANCING
ACTIVITIES
Decrease in bank
indebtedness (16,046.6) (1,814.8) (15,568.3) 1,900.8
Issuance of common
shares 15,825.0 - 15,825.0 -
Share issue costs (1,228.1) - (1,228.1) -
Advances of
technology credit 859.8 859.8
Advances of
long-term debt 17.5 - 17.5 -
Repayment of
long-term debt (903.5) (359.9) (627.0) (22267)
---------------------------------------------------------------------
(1,475.9) (2,174.7) (721.1) 1,678.2
---------------------------------------------------------------------
Net increase
(decrease) in cash
and
cash equivalents
during the period 1,029.3 436.1 989.0 (547.5)
Cash and cash
equivalents,
beginning of
period 977.8 718.0 1,018.1 1,701.6
---------------------------------------------------------------------
Cash and cash
equivalents, end
of period 2,007.1 1,154.1 2,007.1 1,154.1
---------------------------------------------------------------------
See accompanying
notes
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance
with Canadian generally accepted accounting principles. These unaudited condensed notes to the consolidated financial
statements should be read in conjunction with the audited financial statements and notes included in the Company's
Annual Report for the fiscal year ended August 31, 2001.
2. TECHNOLOGY CREDIT
During 2001, the Company entered into an agreement with Technology Partnerships Canada ("TPC"), which will
provide funding from TPC for a three-year period up to a maximum of approximately $3.3 million relating to specific
research projects having a total estimated cost of $10 million. The Company is obligated under its agreement to repay
TPC by way of a royalty commencing in 2004 based upon the total revenue of the Company. The agreement contemplates
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