Trojan earns $172,000 in four-month fiscal period
Trojan Technologies Inc
TUV
Shares issued 21,785,632
Mar 17 2003 close $ 8.50
Monday March 17 2003
News Release
Mr. Allan Bulckaert reports
TROJAN TECHNOLOGIES ANNOUNCES RESULTS FOR FOUR
MONTHS ENDED DECEMBER 31, 2002
Trojan Technologies has released its operating and financial results for the four
months ended Dec. 31, 2002.
The company announced in December, 2002, that it would change its year-end
from Aug. 31 to Dec. 31 to align the company's financial reporting periods with its
industry peers to better enable investors, the financial community and Trojan's
management to make meaningful comparisons between the company and its
peers. The results being provided today reflect the four-month period from Sept.
1, 2002, to Dec. 31, 2002. In accordance with accepted accounting practice, the
comparative financial statements are for the 12 months ended Aug. 31, 2002.
"I am pleased to report continued revenue growth, strong gross margins and
profitable results despite a short reporting period," said Allan Bulckaert, Trojan's
president and chief executive officer. "We are confident that we can continue this
momentum in 2003 and beyond as we continue to diversify our revenue streams
and grow in all markets, both organically and through acquisition."
Financial highlights include:
For the period ended Dec. 31, 2002, revenues were $31.8-million, compared
with $92.7-million in the year ended Aug. 31, 2002, and $18.6-million in the three
months ended Nov. 30, 2001. This represents average monthly revenues during
the four months of $7.9-million, an increase of 28 per cent over the average
monthly revenues of $6.2-million in the three-month period ended Nov. 30, 2001;
Consolidated gross margin for the four months was 41 per cent, or $13.0-million,
compared with 44 per cent, or $40.9-million, in the prior full year and 37 per cent
in the three months ended Nov. 30, 2001;
For the four-month period, net income after tax was $200,000, compared with
$3.7-million for the fiscal year 2002. On a per share basis, the company reported
basic earnings per share of one cent, compared with 19 cents per share in the
prior fiscal year. During the three months ended Nov. 30, 2001, the company
reported a net loss of $400,000, or two cents per share;
Shareholders' equity has grown to $84.5-million from $84.3-million at Aug. 31,
2002. Cash on hand and marketable securities at Dec. 31, 2002, totalled
$5.7-million; and
Order backlog increased by over 15 per cent to $69.4-million at Dec. 31, 2002,
compared with $60.1-million at Aug. 31, 2002.
During the four-month period ending Dec. 31, 2002, marketplace highlights
included:
Municipal waste water disinfection market -- the municipal waste water market
was by far the largest market for Trojan's ultraviolet systems during the period.
Revenues in the four months were $18.7-million, representing average monthly
revenues of $4.7-million, an increase of 10 per cent over the average monthly
revenues in the three-month period ended Nov. 30, 2001. The percentage of total
revenue from the municipal waste water market decreased to 59 per cent of total
revenue in the four months, compared with 78 per cent in the fiscal year 2002.
This reduction in percentage reflects the company's strategy to diversify its
business in other markets and reduce its dependence on the waste water market
to maintain growth and profitability;
Bid activity in this market arena continued to grow. During the four months ended
Dec. 31, 2002, Trojan submitted bids totalling $47.5-million, an average of
$11.9-million per month. This represents an increase of 21.4 per cent per month
from the average of $9.8-million per month during the fiscal year 2002, for a total
of $117-million. Total order backlog at Dec. 31, 2002, in municipal waste water
was $30.6-million, compared with $31.1-million at Aug. 31, 2002;
Municipal drinking water market -- revenues in this market arena increased to
$3.3-million in the four months exceeding revenues of $3.1-million in the entire
fiscal year ending Aug. 31, 2002. Revenues in the four months averaged
$840,000 per month, an increase of 231 per cent over the average monthly
revenue of $250,000 in the three-month period ended Nov. 30, 2001. The
percentage of total revenue from the drinking water market increased to 11 per
cent in the four months, compared with 3 per cent in the fiscal year 2002.
Revenues in North America increased to $3.0-million in the four months from
$2.4-million in the entire fiscal year 2002, reflecting the rapid development of the
market;
Bidding activity continues to grow in this market arena as municipalities prepare
multibarrier solutions to their drinking water treatment processes. During the
four-month period, the company submitted bids on 32 projects in North America
with a total bid value of $6.1-million. Of these bids, 21 contracts totalling
$4.4-million have been awarded to date and of these Trojan has been awarded
16 (76 per cent) with a value of $3.7-million (84 per cent). Total order backlog at
Dec. 31, 2002, in municipal drinking water was $15.7-million, compared with
$9.9-million at Aug. 31, 2002;
Environmental contaminant treatment (ECT) -- revenues in the environmental
contaminant treatment market in the four-month period were approximately
$3.3-million, compared with $4.4-million in the fiscal year 2002. Revenues in the
four months averaged $830,000 per month an increase of 41 per cent over the
average monthly revenue of $590,000 in the three-month period ended Nov. 30,
2001. The percentage of total revenue from the environmental contaminant
treatment market increased to 10 per cent in the four months, compared with 5
per cent in the fiscal year 2002. Total order backlog at Dec. 31, 2002, in the
environmental contaminant treatment market arena was $23.1-million, compared
with $19.1-million at Aug. 31, 2002;
Industrial and commercial process water treatment -- revenues in the industrial
and commercial market in the four months ended Dec. 31, 2002, were
approximately $4.6-million, compared with $7.4-million in the fiscal year 2002.
Revenues in the four months average $1.14-million per month, an increase of 60
per cent over the average monthly revenues of $710,000 in the three-month
period ended Nov. 30, 2001. The percentage of total revenue from the industrial
and commercial market increased to 14 per cent in the four months, compared
with 8 per cent in the fiscal year 2002;
Revenues in Europe for the four-month period were $2.5-million, compared with
$1.6-million in the full fiscal year ending Aug. 31, 2002. The increase is
attributable to contract wins in Scandinavia and revenue from Ueberall GmbH
acquired in May, 2002; and
Residential drinking water market -- revenues in the residential market during the
four-month period were approximately $1.8-million, compared with $5.5-million
in the fiscal year 2002. Revenues in the four months averaged $450,000 per
month, an increase of 19 per cent over the average monthly revenues of $380,000
in the three-month period ended Nov. 30, 2001. The percentage of total revenue
from the residential market was unchanged at 6 per cent in the four months,
compared with the fiscal year 2002.
Review of financial results for the four months ended Dec. 31, 2002
Gross margin
In the four months ended Dec. 31, 2002, gross margin was 41 per cent,
compared with 44 per cent in the fiscal year 2002 and 37 per cent in the three
months ended Nov. 30, 2001. There are number of factors that have contributed
to the sustained improvement in gross margin:
Economies of scale -- the increased level of production revenue in the four-month
period and the fiscal year 2002, were achieved without any increase in the
physical production facilities. As a result, fixed overheads were spread over a
larger business base and production economies were achieved from the larger
production volumes. At the same time, changes have been introduced to the layout
of the production area, which are intended to increase the efficiency of the
assembly and testing processes;
Warranty costs continued to decline as a percentage of revenue in the four-month
period. This reduction reflects the company's increased emphasis on quality and
reliability, the co-operation of suppliers and product design improvements
introduced in recent years; and
A number of business initiatives have contributed to improved margins including an
increased focus on quality processes, ensuring effective management of suppliers
as well as testing protocols on systems prior to shipment.
Administration and selling expenses
In the four months ended Dec. 31, 2002, administration and selling expenses were
$9.9-million, or 31 per cent of revenue, compared with $28.0-million, or 30 per
cent of revenue, in the fiscal year 2002 and $5.4-million, or 29 per cent of
revenue, in the three months ended Nov. 30, 2001.
In the four-month period, sales commissions paid were $1.3-million, or 4 per cent
of revenue, compared with $5.4-million, or 5.8 per cent of revenue, in the fiscal
year 2002 and $800,000, or 4 per cent of revenue, in the three months ended
Nov. 30, 2001. Sales commissions are paid primarily in the municipal waste water
and drinking water markets.
Selling and marketing expenses were $5.1-million, or 16 per cent of revenue,
compared with $12.1-million, or 13.1 per cent of revenue, in the full year ending
Aug. 31, 2002, and $2.6-million, or 14.0 per cent of revenue, in the three months
ended Nov. 30, 2001. The increase is attributable to the inclusion of marketing
costs of recently acquired companies that were not owned throughout the prior
periods. Expenses also reflect efforts to position European operations for growth
including participation at the major biannual trade show and other initiatives to
increase presence in the market.
Administration expenses were $3.5-million, or 11 per cent of revenue, compared
with $10.5-million, or 11.3 per cent of revenue, in the fiscal year 2002 and
$2.0-million, or 11 per cent of revenue, in the three months ended Nov. 30, 2001.
Administration expenses in the four months averaged $880,000 per month, an
increase of 31 per cent over the average monthly expenses of $670,000 in the
three-month period ended Nov. 30, 2001. Insurance costs increased significantly
following policy renewals on Oct. 1, 2001, and Oct. 1, 2002. These increases
reflect the general condition of global insurance markets, the growth in Trojan's
business and some limited coverage extensions initiated after a comprehensive
review of Trojan's insurance programs. Legal costs related to continuing
intellectual property matters also contributed to the increase.
Research and development expenses
Research and development expenses were $1.6-million, or 5 per cent of revenue,
compared with $4.2-million, or 5 per cent of revenue, in the fiscal year ending
Aug. 31, 2002, and $1.0-million, or 5 per cent of revenue, in the three months
ended Nov. 30, 2001. The research and development efforts are directed at both
product and technology development. During the four months ended Dec. 31,
2002, Trojan was focused on two important initiatives; the further development of
Trojan's range of drinking water products and the development of large systems in
the environmental contaminant treatment market.
Amortization
In the four months ended Dec. 31, 2002, amortization expense was $1.2-million,
compared with $3.3-million in the fiscal year 2002, and $700,000 in the three
months ended Nov. 30, 2001. Amortization expense has increased because of
validation costs incurred on new products introduced primarily in the municipal
drinking water market and the amortization of intangibles acquired in acquisitions
completed in 2002. These costs are amortized over periods of three to five years.
Other income (expenses)
During the four-month period, other income was $200,000, compared with an
expense of $700,000 in the fiscal year 2002, and an expense of $400,000 in the
three months ended Nov. 30, 2001. Net interest expense was $100,000 for the
four months, compared with an expense of $1.0-million respectively in fiscal year
2002. After completing two equity issues in fiscal 2002, Trojan was able to repay
all of its bank indebtedness and has cash and marketable securities invested to
generate interest income. During the fiscal year 2002, Trojan sold 17 acres of
undeveloped land deemed to be excess to the company's future needs at a loss of
$640,000.
Income (loss) before taxes
Income before taxes in the four months ended Dec. 31, 2002, was $400,000,
compared with $4.6-million in the fiscal year 2002, and a loss of $600,000 in the
three months ended Nov. 30, 2001. The increase in production revenue and the
improvement in gross margin were the primary reasons behind this improvement
from the prior year. Compared with the fiscal year 2002, income before taxes was
lower because of the levels of production revenue. Historically, revenues in the
September-to-December period are lower than the remainder of the year, as
fewer waste water systems, which represent the major part of Trojan's business,
are installed during the winter months.
Cash flow
Cash flow from operating activities
The net cash flow from operations was $500,000 in the four months, compared
with an outflow $2.6-million in the fiscal year 2002. Net income for the four
months was $200,000, compared with $3.7-million in the year ended Aug. 31,
2002. Amortization is also a "non-cash" charge in the amount of $1.2-million in the
four months, compared with $3.3-million in the fiscal year 2002.
Net cash flow from operations is also effected by changes in non-cash working
capital balances. In the four months, operations consumed $600,000 of cash,
compared with $9.0-million in the fiscal year 2002. As at Aug. 31, 2002,
$11.4-million of the unbilled revenue of $20.6-million represented a single
contract. During the four months ended Dec. 31, 2002, this contract was
delivered to the customer and, once invoiced, the account was included in
accounts receivable -- trade. Subsequent to Dec. 31, 2002, the account has been
paid in full.
At Dec. 31, 2002, trade accounts receivable were $34.4-million, including
$8.1-million of customer holdbacks, compared with $24.7-million, including
approximately $8.1-million in customer holdbacks at Aug. 31, 2002. The principal
cause of the increase was the single large contract explained in the preceding
paragraph.
Unbilled revenue decreased to $9.8-million at Dec. 31, 2002, from $20.6-million
at Aug. 31, 2002. This account represents the value of contracts in progress, using
percentage of completion accounting. The reduction is attributable to the delivery
during the period of a single large contract of over $11.4-million that was in
progress at Aug. 31, 2002.
Cash flow from investing activities
In the four months ended Dec. 31, 2002, cash from investing activities totalled
$4.5-million, compared with being a use of $15.5-million in the fiscal year 2002.
During the four-month period, Trojan realized $6.7-million net from the purchase
and sale of marketable securities, compared with making a net investment of
$10.4-million in fiscal year 2002.
Cash flow from financing activities
Financing activities in the four months ended Dec. 31, 2002, represented a net
cash outflow of $6.6-million, compared with a net cash inflow of $20.7-million.
During the four-month period, $2.8-million was applied to reduce bank
indebtedness, $3.1-million was applied to repay long-term debt and $1.3-million
was used to make payments on the acquisition of intellectual property. During the
fiscal year 2002, $36.4-million was raised through the successful completion of
two equity issues of which $12.9-million was applied to the reduction of bank
indebtedness and $2.1-million was applied to the repayment of long-term debt.
Credit facilities
In the four months ended Dec. 31, 2002, Trojan had a line of credit of $30-million
available for operating purposes.
Outlook
The company believes it is well positioned for growth. Order backlog is at record
levels, with $54.0-million of orders in hand for 2003 and $15.4-million already in
place for 2004. The 2003 backlog represents approximately 83 per cent of
anticipated project revenue in the municipal waste water, municipal drinking water
and environmental contaminant businesses. In addition to the businesses in which
the company measures order backlog, revenue is derived from after market sales
and service, as well as from the industrial and residential markets.
It is management's objective to achieve an increase in revenues to over
$110-million and basic earnings in the range of 40 cents per share for the year
ended Dec. 31, 2003, approximately double the performance achieved in the year
ended Aug. 31, 2002.
A conference call and Webcast will be held for investors, analysts and media at
4:15 p.m. (EST) on March 17, 2003. The conference call will be hosted by Allan
Bulckaert, president and chief executive officer, and will include Douglas
Alexander, executive vice-president and chief financial officer and Marvin
DeVries, executive vice-president. The phone number to call is (416) 640-4127,
or (800) 814-4853. A taped version of the call will be available until midnight
Monday, March 24, 2003, by calling (416) 640-1917, or (877) 289-8525 and
dialling passcode No. 243055#. The live Webcast and a rebroadcast will be
available at www.trojanuv.com.
WARNING: The company relies upon litigation protection for "forward-looking"
statements.
CONSOLIDATED STATEMENT OF INCOME
(thousands of dollars)
Four Year
months ended
period Aug. 31,
Dec. 31, 2002
2002
Revenue $ 31,755 $ 92,677
Cost of goods sold 18,747 51,752
---------- ----------
Gross margin 13,008 40,925
---------- ----------
Expenses
Administrative
and selling
expenses 9,998 28,046
Research and
development, net 1,633 4,237
Amortization 1,184 3,282
---------- ----------
12,815 35,565
---------- ----------
Income before
other income
(expenses) 193 5,360
Other income
(expenses)
Interest, net (140) (970)
(Loss) on sale
of capital
assets - (642)
Income from
equity investment 308 878
---------- ----------
Income before
taxes 361 4,626
Income tax
provision 189 951
---------- ----------
Net income $ 172 $ 3,675
========== ==========
Earnings per
share
Basic $ 0.01 $ 0.19
Fully diluted $ 0.01 $ 0.18
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