Ralph,
Yesterday I attended the ADTC annual meeting and thought that you
might be interested in what I learned, since you are feeling down on
the company.
Financing - Glenn Walters (GW) said that as of last week, The Royal Bank of Canada had agreed to re-finance some portion of the DNA purchase as long term debt.
Microwave Products - Sales of microwave films to the packaging
industry are going great, growing steadily. Brown and Crisp sales
are down. GW said that the price point set by the distributor is too high, but ADTC has no control over this. He expects that the product
will be re-positioned at a lower retail price when an improved version
is introduced in July. The infomercial for the bags has been running for a long time and that audience may be fished out. 40 million bags were sold in 1997!
A new microwave product for use by food kiosks is about to be introduced. It involves a new ADTC patent. A bag designed
specifically for cooking chickens is also in the works.
Capacitor Products - One company is using HED film in production
capacitors and 3 more are expected this year. Improved HED films,
along with another new patent, are on their way.
About 30 companies are testing HED film at this time. I get the impression that capacitor makers are quite a conservative bunch and
are being very careful in their testing. The big selling point for the HED films isn't lower price or reduced size, but additional protection
against capacitor overheating and fires.
Production Problems - It has been difficult for ADTC to iron out some
inconsistencies that have led to high scrap rates and reduced output.
About 2 months ago they changed to a different vendor of the basic
films and these problems have largely disappeared. Where previously a scrap rate of 15% was considered very good, they are now seeing rates of 5% on a consistent basis. This is the best news of all as far as I'm concerned because it will greatly improve the company's gross margins. Profitability, here we come!
The slitting operation, where wide rolls of film are cut into narrowed rolls, is the process bottleneck, and they are improving this area.
Business in General - Right now, orders are far exceeding ADTC's
ability to produce. They have been improving their process and
expect to increase their output by 100% in 1998 without adding
additional facilities. Like almost every fast growing business, they
are limited by their cash flow.
DNA is not currently receiving films from ADTC because production
isn't sufficient to meet the demands of other customers. They are targeting having adequate capacity to fulfill 60% of DNA's requirements plus all other orders. Having DNA available to take up any slack in demand means that the risks involved with making
additional investment in production capacity that doesn't get used
are very remote. I like this.
General Impressions - I made it a point to talk to everyone I could, and
that included GW, Alex Boxall (DNA), Bob Boughrum (Capacitors), Mark Thomas (Finance), John Moroney (Operations) and Rick Cowen (Microwave). They all impressed me as very intelligent, well informed, extremely professional and quite experienced. If I were hiring someone to do the job that each of them has to do, I would be
delighted to have come up with such a good team. To me, this is a
very important part of feeling that my investment is a wise one. I feel more strongly than ever that ADTC is going to be a great success and
that the turbulence we have had lately isn't an indication of an impending crash but of the booster motors firing as the rocket is lifting
off the pad.
Tom |
