More hidden agenda from ( Brent Mudry ? ):
Hopes pinned on SV-35 to replace Timbercote income
Napier International Technologies NIR
Shares issued 18,530,248 Oct 26 close $1.40
Mon 26 Oct 98 Street Wire
BENIGN PAINT STRIPPER SOUNDS GOOD, BUT IT'S NEWS TO US, SAYS AIRLINE
by Stockwatch business reporter
When an aircraft paint stripper is so toxic that in order to apply it
workers must dress in space suits and breath from oxygen tanks, it is clear
that an environmentally friendly replacement will have good potential in
that market.
With its patented non-toxic, biodegradable, yet effective SV-35 paint
stripper, Vancouver-based Napier International Technologies feels it has
the potential to win a large share of a $100-million (U.S.) market
dominated by methylene chloride-based competitors. The only trouble is, in
spite of how good it may be for the environment, airlines have been slow to
place orders. One explanation for his is that Vancouver's major airline,
Canadian Airlines International, has not yet heard the pitch from Napier in
spite of the fact CAI likes the idea.
Still, Napier is optimistic it is on a roll with SV-35 following last
month's deal with a big-name client, Trans World Airlines.
On Sept. 18, Napier announced a deal with TWA in which Napier would be the
airline's preferred supplier of paint stripper, meaning that TWA will use
SV-35 unless supply or other unforeseen problems develop. It also means
Napier will continue to supply TWA until the airline or Napier decide
otherwise. Napier produces SV-35 at its manufacturing plant in the
Vancouver suburb of Surrey.
Napier has confidence in SV-35, not only because the company believes it is
a worthwhile product on its own, but because the alternatives are so
hazardous. Traditional aircraft paint strippers are based on methylene
chloride, a chemical that not only gives off toxic fumes but is a proven
carcinogen and is ozone depleting. "Everybody who uses SV-35 swears by it
and wouldn't go back to the old stuff because they know they're putting
their lives in jeopardy every time they use it," says Napier spokesman
Jason Cubitt. "Methylene chloride is very nasty stuff," he adds, pointing
out that the chemical is used to weld plastics together. "Zero exposure is
what you're allowed and that's why the space suits."
Complaints from labour and environmentalist groups have resulted in a
future phasing out of methylene chloride in much of the West, with the
United States taking the lead. Although not actually banned in America at
the moment, the ban will be phased in over the next several years. Europe
is also moving in that direction, but Canada has been much slower to impose
restrictions, according to Mr. Cubitt.
With preferred-supplier status, the TWA deal establishes for Napier what
could be a long-term relationship with the airline. It takes between two
and four barrels of SV-35 to strip the paint from a commercial jet
aircraft, depending on its size. At around $900 (U.S.) per barrel, 200
aircraft at TWA, and a rotation of one paint stripping every five years as
per regulations, the deal could be worth between $360,000 and $720,000 to
Napier every five years, or an average of between $72,000 and $144,000 a
year.
Business with this single airline would have a measurable impact on
Napier's bottom line. For the nine months to April 30, 1998, the company's
revenues came to an anemic $298,702 (Cdn.) and a net loss of $595,325. That
compares with the year-before figures of $1.17-million in revenue and a net
loss of $464,078.
Napier insists that overall revenues for SV-35 are satisfactory, stating on
Sept. 18 that sales growth of the product to September 18 has averaged 20
per cent a month since January 1998 and the number of active accounts
rising to 79 from 20 during the same period. Furthermore, a number of
airlines, original equipment manufacturers and refurbishers are testing the
product and many can be expected to buy the product.
In spite of only securing one big-name client, Mr. Cubitt says the industry
has responded to the product as well as can be expected, emphasizing that
SV-35 has been marketed for less than six months. That followed two years
of research and development by Napier's chief chemist Sergio Vitomir.
Calgary-based Canadian Airlines International, which has its major
maintenance facility in Vancouver, is not familiar with Napier's product,
but a spokesman says the airline would like to find out more about SV-35. A
CAI maintenance manager says Napier's sales people have not been in contact
with him, adding that he read about the product in a trade magazine. The
manager, who declined to have his name used for this story, notes the
airline is in a slow part of its paint-stripping schedule, with only one
aircraft slated for stripping in the next year. CAI's fleet numbers 80
aircraft.
SV-35 costs around twice as much as methylene chloride-based products.
Further, once it's applied, SV-35 takes around 50 per cent longer to do its
job -- around 12 hours versus eight hours. Mr. Cubitt, however, argues that
only about half as much SV-35 is required to do the same job.
There are other significant savings with SV-35, such as intangible
productivity advantages gained through not having to suspend other
activites in the hangar where methylene chloride is being used.
In addition, the company says disposal costs of SV-35 are around one tenth
that of methylene chloride. Because of methylene chloride's high level of
toxicity, the sheets of stripped paint that fall off the aircraft during
paint stripping must be handled and disposed in a careful, costly and
regulation-filled process. In a disclosure statement of May 19, 1998,
Napier said disposal of methylene chloride could cost as much as $800 a
barrel.
SV-35, on the other hand, has no toxic substances and so requires no
special handling or disposal procedures. "Disposal is one of our greatest
advantages," Mr. Cubitt says. "It's slower to work but cleanup takes a
fraction of the time and disposal is much, much cheaper."
The paint from the aircraft, however, is toxic in its own right and so must
be disposed according to the book.
SV-35 is 50 per cent water and contains peroxide. Beyond that, Mr. Cubitt
declines to elaborate about the formula.
Napier does not have the environmentally friendly aircraft paint-stripping
market to itself. It does, however, lay claim to owning the only
biodegradable paint stripper in this field that can remotely be considered
effective. In fact, Mr. Cubitt says the biggest problem Napier has faced in
marketing SV-35 is the secondary effects of its environmentally benign
predecessors. "The term environmentally friendly is almost synonymous with
ineffective and we had some resistance because it was understood that
anything that wasn't toxic didn't really make the grade," he says.
The company is also developing SV-35 for non-aircraft applications, such as
marine, industrial and housing.
Until now, all of Napier's paint-stripping product has been manufactured in
its Surrey plant. In order to boost production, the company signed a deal
with Toronto-based K-G Packaging to make, package and ship the product
under licence.
More good news for Napier came in August, with a preliminary distribution
deal between it and ICI Canada, which controls the Glidden and Dulux paint
brands. Napier is hoping to secure a private-label distribution deal with
ICI, which is owned by the multinational Imperial Chemicals Industry,
reportedly the world's largest chemical company.
Napier was listed in June 1990 in a reverse takeover of the publicly traded
First Manhattan Resources by Napier Pacific Industries and the private
Waitomo Industrial Investments as a vehicle for Napier's flagship product,
Timbercote. Timbercote is an anti-sapstain product designed as an
environmentally friendly replacement to cancer-causing PCPs, which were at
that time being banned.
Anti-sapstain products are used to protect lumber from mould and fungus
that stain and devalue lumber during transport and warehousing. During
fiscal 1996 sales of Timbercote accounted for around 94 per cent of the
company's revenues of $1.66-million.
That figure has fallen sharply in the past two years. Its May 19, 1998
disclosure notes that numerous competitive products have entered the
market. In addition, the forest companies have moved toward improved
kiln-drying technology and this has significantly reduced total chemical
consumption in the forest industry.
If SV-35 is Napier's financial saviour, the rescue comes none to soon. Its
Timbercote-based revenues have been declining steadily for the past five
years. In 1993, revenues stood at $2.8-million, in 1994 $2.3-million, in
1995 $2.1-million, in 1996 $1.6 million, and in 1997 $1.1-million.
On March 15, 1997 Napier signed a worldwide distribution and service
agreement with Diacon Technologies for this portion of its fast-dwindling
business. "The company continues to receive minor revenues from its
anti-stain products," the May 19 disclosure said.
Napier's stock, currently around $1.50, has been extremely volatile this
year, with a 52-week range of $4.88 and 12 cents. Its highs have been
particularly rewarding for insiders, whose 1.6 million outstanding stock
options as of Dec. 16, 1997 carried an exercise price of between 12.5 and
16 cents.
In particular, director Clifford Davis benefited during this year's runup,
exercising 100,000 options priced at 13 cents on May 4 when the stock that
day was trading between $3.10 and $3.43. During the next three days, to May
6, Mr. Davis sold 190,000 shares between $3.35 and $4.30.
Others with similarly good timing included president Bradley Aelicks, who
exercised 225,000 options at 12 cents on April 21, when the stock was
trading between $1.75 and $2.13. Over the next 30 days, Mr. Aelicks sold a
total of 304,000 shares.
Mr. Aelicks's exercise date, April 21, also happened to be the day Napier
announced a deal to acquire the Calgary-based private concern Aquasol
International. Aquasol developed the industrial cleansing product Aquasol
Solution and had recently entered into a private-labelling agreement with
ICI Paint. Immediately following this announcement, Mr. Aelicks also bought
30,600 shares on the open market between $2.22 and $2.46.
Operations vice-president and chief financial officer James Grinnell was
also active with options during this period. Mr. Grinnell on April 20
exercised 85,000 options at 16 cents and 75,000 options at 12 cents. that
same day the stock was halted for the Aquasol announcement, but it closed
at $2.13 on April 21, up 72 cents from the previous close of $1.41 on April
17.
While proving a short-term boost to the value of Napier's shares, the April
21 to acquire Aquasol in exchange for 5.93 million of its shares proved to
be doomed from the start. The market initially found abundant good news in
the announcement, sending the stock up from $1.41 to $4.88 on May 6. That
valued Aquasol at $29-million.
Then on May 15, another Alberta company that claimed to be the true owner
of Aquasol's technology filed a $55-million lawsuit against Aquasol and its
insiders in the Court of Queen's Bench of Alberta. By then more than 20.5
million shares of Napier had traded in the intervening three weeks.
It was not until Aug. 14 that Mr. Aelicks informed Napier shareholders of
the litigation and subsequent placing on hold of the deal.
Clearly, the company's non-toxic, non-litigious future lies in
paint-stripping.
(c) Copyright 1998 Canjex Publishing Ltd. canada-stockwatch.com
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