Zenon posts ...... profitable third quarter with record revenue and growing backlog
Trading Symbol: ZEN and ZEN.A on The Toronto Stock Exchange
OAKVILLE, ON, Nov. 19 /CNW/ - ZENON, the membrane technology leader in
water treatment, closed the third quarter ending September 30, 2002 with a 14%
increase in both revenue and profit over the same quarter as last year.
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Financial Highlights
--------------------
For the three and nine months ended September 30:
Three months Nine months
2002 2001 2002 2001
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($ 000's)
Revenue 36,577 32,216 93,567 85,081
Operating income
before income taxes 3,329 2,634 2,460 3,838
Net earnings 2,443 2,134 1,786 2,469
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Net earnings per
share - basic $0.10 $0.09 $0.07 $0.10
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Revenue of $37 million was an increase of $9 million over the second
quarter 2002. On a year-to-date basis, revenue of $94 million was 10% higher
compared to the previous year. Net earnings of $2.4 million, or $0.10 per
share, are also up from the third quarter of 2001. The company's operating
profit of $3 million is recorded as the best to date for the quarter and is up
26% over the third quarter of last year.
"ZENON continues to set record backlog levels and the third quarter is no
exception," said Andrew Benedek, Chairman and Chief Executive Officer of
ZENON. "I am happy to report that our backlog stands at $137 million at the
end of September 2002, a 14% improvement from a year ago.
Highlights of the Quarter
-------------------------
During the quarter, ZENON received approximately $45 million in new
orders, the majority of which came from North America. Among them is the
retrofit and upgrade of an existing wastewater treatment plant in Tucson,
Arizona. The Randolph Park Wastewater Reclamation Facility will treat
wastewater to be reused for irrigation. In an effort to conserve the supply of
potable water, the reclamation facility will supplement the community's
existing water supplies that are used specifically for watering lawns and golf
courses. Valued at approximately $6 million, the new wastewater treatment
plant is expected to be complete by November 2003.
Residents of the Town of Collingwood, Ontario and neighbouring
communities have been enjoying water treated by ZeeWeed(R) membranes since
1998. Due to an increase in demand, the Town has decided to expand the
existing facility with the purchase of ZENON's latest technology, the
ZeeWeed(R) 1000. This new addition will augment current drinking water
capacity to produce nearly 9 million gallons of pure, safe water per day.
In addition to the above, ZENON has been selected by the Municipality of
Port Hope to provide its ZeeWeed(R) 1000 technology for a new drinking water
plant that will be sized to produce 7 million gallons of water per day.
Currently, ZENON has been awarded the first phase consisting of an engineering
design contract. Once completed in 2003, this will bring the number of ZENON
technology plants in Ontario to 24.
As has been stated in previous announcements, ZENON's pipeline is full of
orders for which the company is working on the engineering design or has
received a Letter of Intent acknowledging that it has been pre-selected. The
current value of these projects is in excess of $100 million and the company
is confident that it will be awarded the formal purchase orders over the next
several months.
ZENON continues to maintain its lead in the municipal wastewater market
globally. During the quarter, the company announced that construction would
start on North America's largest membrane wastewater treatment plant, to be
built in Traverse City, Michigan.
"We are seeing a progressive increase in plant sizes as rates of adoption
increase," said Mr. Benedek. "A year ago, there were no MBR (membrane
bioreactor) plants treating more than 8 million gallons of wastewater per day.
There are now three plants larger than 8 million gallons per day all using
ZENON's MBR system."
The company's European business is also on the rise with $16 million in
new orders booked during the quarter. In addition to winning the contract to
build the largest European membrane boiler feed plant in Hungary, the company
has received two orders in Holland; one to treat municipal sewage, the other
to treat wastewater for a meat processing plant.
At the beginning of the year, construction began on ZENON's new
manufacturing plant in Hungary. On November 13, 2002 the new facility was
officially opened and has already commenced membrane production. The plant
will initially double ZENON's current membrane capacity and is built to
accommodate future growth as required.
It was announced during the quarter that Homespring, ZENON's new whole
home product, received NSF certification and is now available through Enbridge
Home Services in the Greater Toronto Area, Ottawa and the Muskoka region. NSF
is North America's most accepted and respected certification body for public
health and safety. The Homespring UF 100 can be installed in any home and will
instantly provide cleaner, better tasting water for the entire home. Although
the initial launch is in Ontario, ZENON expects to market this unique product
throughout Canada and the United States over the next year.
ZENON has been acknowledged for its achievements in a number of areas
this year, most notable of which are:
- Canada's Exporter of the Year presented by the Department of Foreign
Affairs and International Trade, acknowledging ZENON's success and
achievements beyond Canada's borders
- Canadian Innovation Award for Sustainable Development presented by the
Canadian Manufacturers & Exporters, recognizing innovative excellence
in developing new technology as it relates to environmental improvement
- Outstanding Business Achievement Award presented by the Ontario Chamber
of Commerce, ZENON is the only company that has received this award
twice, the first was in 1998
- Canada's Top Corporate Citizen presented by Corporate Knights
acknowledging ZENON's level of corporate social responsibility
- 2002 Product Achievement Award presented by Filtration & Separation
magazine for the development of the ZeeWeed(R) 1000 membrane
- Technology of the Year presented by Frost & Sullivan, recognizing
ZENON's outstanding achievements in technology development
- For the third consecutive year, ZENON has been recognized as one of
Canada's Top 100 Employers
Management Discussion and Analysis
----------------------------------
Revenue at $37 million set a record for third quarter revenue in the
Corporation. Revenue is 14% higher than the third quarter of 2001 and 10%
higher on a year-to-date basis.
The North American market has provided the majority of the revenue growth
in the quarter at 19% compared to the previous year. On a year-to-date basis,
North America revenue has increased 8.2% and Europe, Middle East and Asia
combined have increased 16.1% over the previous year.
Complementing revenue growth was the increase in the company's backlog to
$137 million based on $45 million of new orders booked in the month.
Gross profit for the third quarter is 38.4%, just slightly below that for
the third quarter a year ago. Improvements in gross profit can be seen
throughout 2002 where the year-to-date figure of 34.7% for the nine months
ended September 30 was up from 32.3% for the six months ended June 30. This
reflects improvements in production as well as efficiencies in membrane
manufacturing and product mix.
Selling, general and administrative (SG&A) expense is 23.6% of revenue
for the quarter and 25.4% of revenue on a year-to-date basis.
Depreciation and Amortization at $2.3 million is consistent with the
previous quarter and continues to reflect the ongoing investment in membrane
technology and capacity.
Net interest was an income of $236,000 in the quarter and $531,000
year-to-date, compared to an expense of $378,000 and $1,613,000 respectively,
as a result of ZENON's equity issue in the first quarter of 2002.
Operating income of $3.3 million represents a record quarter for
operating income before one-time adjustments for the company and was
$0.7 million higher than last year. The year-to-date operating profit of
$2.5 million, which remains below last year's result of $3.8 million, reflects
the strategic Singapore order impact in the second quarter.
The effective tax rate of 26.6% for the quarter and 27.4% for the year
and the decrease in future tax assets reflects the geographical distribution
of the income. This resulted in a net income for the quarter of $2.4 million
($0.10 per share), compared to $2.1 million last year. On a year-to-date
basis, net income was $1.8 million ($0.07 per share) compared to $2.5 million
($0.10 per share) for the previous year.
Capital Expenditure and Liquidity
---------------------------------
In February 2002, ZENON completed the sale of two million non-voting
Class A shares and one million common shares for aggregate proceeds of
$42.5 million. A portion of these proceeds was used to repay the revolving
term facility of $10 million and the balance to finance capital expenditures.
Capital expenditures in property plant and equipment of $11.5 million in
the quarter and $35.8 million for the year represent the company's continued
investment in proprietary membrane technology. The major areas of expenditure
were the continued construction of ZENON's new membrane manufacturing facility
in Hungary, the upgrade of ZENON's membrane manufacturing plant in Burlington,
Ontario, the development of production capacity for Homespring and the ongoing
investment in pilot costs to enable the company to further promote its
products in the marketplace.
Operating activities used $1.4 million in cash in the quarter compared to
generating $11.3 million on a year-to-date basis. The utilization of cash
resulted from the funding of working capital to support the increase in
revenue. Management continues to focus on working capital management and
improving cash utilization. Increased activity for ZENON's European operations
has necessitated the maintenance of cash balances to offset a portion of
guarantees issued to customers, which are part of the normal course of
business in Europe. As a result, restricted cash has increased $900,000 in the
quarter and $3.1 million on a year-to-date basis.
Overall, the company continues to be in a strong financial position to
support growth with cash and cash equivalents of $8.6 million at the end of
the quarter.
Accounting Policies
-------------------
The Consolidated Financial Statements have been prepared using the same
accounting policies as described in the Company's 2001 annual report, except
for the following items:
Effective January 1, 2002 ZENON adopted the Canadian Institute of
Chartered Accountants (CICA) recommendations for the measurement, presentation
and disclosure of goodwill. Goodwill is no longer amortized, but is tested at
least annually for impairment. Goodwill will not be amortized in 2002. In
accordance with the recommendation, the change in accounting policy is not
applied retroactively. If goodwill had not been amortized in 2001, net
earnings for the third quarter would have increased by $69,000 and for the
first nine months of 2001, net earnings would have increased by $208,000.
Effective January 1, 2002 the company also adopted the CICA
recommendation for stock-based compensation and other stock-based payments. At
present, the company does not expense stock options that are granted to
employees and directors under stock and stock option plans with no cash
settlement features. Had the company chosen to recognize the compensation, net
earnings for the third quarter of 2002 would have decreased by $164,000 and by
$247,000 for the first nine months.
Outlook
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In 1999, ZENON was awarded the contract to build what is currently the
largest installed ultrafiltration drinking water plant for Olivenhain,
California, producing 25 million gallons of water per day. Since quarter-end,
the company announced a new 42 million gallon per day project to be built in
Kamloops, British Columbia. Both are clear signals that membrane plants are
becoming more prevalent and are increasing in size.
When combined with the projects that are currently in ZENON's pipeline,
management feels confident that it will continue to increase backlog. The
financial results of the quarter also reflect management's ongoing focus on
cost containment and profitability.
"ZENON's future has never looked as bright and promising as it does
today," concluded Mr. Benedek. "We have the right team and technology in place
and are strategically positioned to take advantage of the increasing market
opportunities."
Conference Call and Webcast
---------------------------
ZENON will hold a conference call on Wednesday, November 20, 2002 at
10:00 a.m. (EST) to discuss the company's financial results for the quarter
and answer questions related to issues addressed in this release. To
participate in the call, please dial 416-405-9328 five minutes prior to the
10:00 a.m. start. If you are unable to participate in the call at the
scheduled time, you may listen to a replay by dialing 416-695-5800 then
entering the pass code number 1308300. This service will be available through
November 27, 2002.
A live webcast of the conference call will also be available through the
Investor Relations section of ZENON's website at www.zenonenv.com.
ZENON is a world leader in providing advanced membrane products and
services for water purification, wastewater treatment and water reuse to
municipalities and industries worldwide. With hundreds of installations in
over 30 countries, ZeeWeed(R) is Everywhere!
Chosen as Canada's Top Exporter of the year, ZENON is also proud to be
ranked as the country's Number One Corporate Citizen by Corporate Knights, a
business publication addressing corporate social responsibility. For the third
consecutive year, ZENON has been chosen as one of Canada's Top 100 Employers.
The ZENON group of companies employs over 800 people who operate from
seven locations in North America, six in Europe, and one in each of Asia,
Latin America, and the Middle East.
A S&P/TSX Composite company, ZENON Environmental Inc. trades under the
symbols ZEN and ZEN.A.
Additional information is available at the Company's web site
www.zenonenv.com.
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Nice numbers.
Good luck to all