Tecmar announces results for fiscal 1997 Second Quarter -
Tecmar today announced its second quarter results for the 3 month period to November 30/96.
The first quarter results which were announced on October 30/96 included the booking of US $7.1 million associated with the restructuring of the Canadian business unit (including the write-down of inventory and fixed assets, the write-off of intangible assets and the accrual of severance and facility costs) and an operating loss of 2.1 million.
The 2nd Quarter results are as follows -
2nd Q 1st Q
Tecmar sales US $10,200,000 12,800,000
Tecmar operating
loss US $1,700,000 1,200,000
Storage One sales $7,800,000 5,600,000
Sales - US $18,110,000 18,767,000
Gross Margin - US $1,944,000 2,647,000
G&A, Selling, R&D - US $4,271,000 4,835,000
Operating loss - US $2,327,000 2,188,000
Net loss after disposition/
reorganization costs - US $ 2,918,000 9,349,000
Shareholders equity - US $ 8,968,000 11,783,000
Working Capital - US $ 5,484,000 8,008,000
Book Value per share - Cdn 1.90/share
The results were released during trading today. The trading volume on the TSE was very light (10,900 shares) especially considering that it was announcement day. The trading range was Cdn 2.06 to 2.20; closing at 2.20 - no change from the previous day.
Tecmar has provided in the 2nd Q, $511,000 for the expected costs of reorganization of its tape business manufacturing segment.
The disposition of the Canadian systems operations which principal businesses are the manufacture and distribution of disk array subsystems and the V1500 storage systems occurred in December. This business was not able to generate any degree of volume that Legacy had initially expected and basically was given away as it was not considered to have a future. A net loss of 0.7 million was sustained by the disposed units in the 2nd quarter.
Based on the current gross margin of approximately 10% on sales, Tecmar will not be profitable in the near future. Tecmar must be able to market products that it can sell at a greater margin and volume to be a viable company. Hopefully the latest developments will be the beginning of growth for this company. The failure of Legacy was to believe in products that it believed would sell themselves. The distribution and marketing network that it had did not result in the sales volume or profitability needed. The disposition of the unprofitable business for what it was worth (almost nothing) was necessary to allow the company to focus on an area that had a future. I am not aware of the reasons why the Tecmar predecessor (Rexon) went bankrupt. I would expect it would have a lot to do with being in a very competitive environment where the profitability was unable to sustain operations. Given Tecmar's current weak finances, it is questionable whether the current structure is able to lead to a thriving business. Management must take the divestiture further by minimizing costs in the remaining business to preserve cash and to build on developing the new products.
Now that the company is reorganized with the disposition and the focus of management on key operations, I believe that the losses have stopped. I expect the next few quarters to be near break-even. As the shares are currently trading near the book value, I do not expect to see any further decline in the price. However, unlike the sharp increase in price in November (which I thing was based on some temporary wishful thinking of investors thinking that a disposition was going to result in profit on sale), I believe that management is taking the steps necessary to build on what is left of the Legacy vision. The stock meanwhile remains a speculative investment until profitability has been demonstrated as achievable.
Happy Investing. |
