Dynetek Reports Higher Revenues and Sales
CALGARY, Aug. 13 - Dynetek Industries Ltd. (TSE:DNK) reports its financial and operating results for the second quarter ended June 30, 2001. All amounts are reported in Canadian dollars. "Dynetek continues to show market penetration with an increase in cylinder sales for the third consecutive quarter. Our total revenue increased 59% over the same six month period in 2000," says Heinz Portmann, Dynetek's President and Chief Executive Officer.
Highlights
(thousands of Canadian
dollars, except share Three months ended Six months ended
capital and per common June 30 June 30
share amounts) 2001 2000 2001 2000
-------------------------------------------------------------------------
Revenue 2,604 2,303 4,830 3,042
Earnings (loss) (403) 150 (548) (266)
Earnings (loss) per common
share (0.02) 0.01 (0.03) (0.02)
Capital expenditures 2,970 204 4,050 316
Cash and cash equivalents 34,751 250 34,751 250
Long-term debt 1,096 2,482 1,096 2,482
Common shares
outstanding 19,530,599 11,258,352 19,530,599 11,258,352
Fully diluted common
shares outstanding 20,426,539 11,258,352 20,426,539 11,258,352
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A graph entitled "Quarterly Revenue" accompanies this press release. To receive a faxed copy please call 403.269.7605 or view it in the Quarterly Report at www.dynetek.com
In June of 2001 Dynetek continued to build strategic relationships with its announcement of a 1000 cylinder order to Kokan-Drum for approximately US $1.3 million. Dynetek has been supplying cylinders to Kokan-Drum for the last four years and this order demonstrates Kokan-Drum's confidence in Dynetek and the DyneCell(R) system. Kokan-Drum will distribute these cylinders to major Japanese carmakers and bus manufacturers for their CNG (compressed natural gas) vehicles. Kokan-Drum currently controls approximately 70% of the Japanese composite cylinder market.
The Company continues to maintain and enhance its market and technological leadership position in the CNG and compressed hydrogen fuel storage industry. In April 2001 Dynetek announced it was delivering the first of two on-board hydrogen fuel storage systems for 30 fuel cell buses produced by DaimlerChrysler. Dynetek is working directly with XCELLSiS The Fuel Cell Engine Company that is providing the fuel cell engine. Dynetek is designing the fuel storage solution using its certified 350 bar (5075 psi) hydrogen fuel storage system. The 350 bar system provides the driving range that is critical for a bus. A commercial bus needs to be in service over eight hours per day before refueling and the 350 bar system is able to provide this. The Dynetek system is also lightweight which doesn't impact the overall bus weight and therefore increases the fuel and bus efficiency.
Dynetek research and design activities aimed at conforming its DyneCell system to meet different North American standards was successful, with the sale of 32 cylinders to Labrie Equipment for a fleet of six natural gas powered refuse haulers. The refuse market is rapidly growing. Five counties in California have legislated that as of July 1, 2001 fleets of 50 trucks or more must be alternative fuel vehicles. The Company is actively pursuing the waste market and has sold DyneCell systems to other OEM's including Wittke Waste Equipment Ltd.
Dynetek continues to establish alternative applications for its Advanced Lightweight Fuel Storage System(TM) for compressed gases with the sale of six systems to Gas Ex Avalanche Control for its avalanche control system. The DyneCell system has been used to store compressed oxygen for use by the British Columbia Ministry of Transport and Highways. The Dynetek unit benefits Gas Ex by reducing its costs and increasing the efficiency of their product. Dynetek is currently pursuing other opportunities this global market in North and South America and Europe. The Company's market research concludes there are a multitude of applications where the DyneCell system can provide substantial economic benefit in the transport of compressed gases.
To meet its global customer needs Dynetek has expanded its Calgary manufacturing plant by an additional 20,000 square feet, for a total of approximately 67,000 square feet. This additional space will house new proprietary equipment for the single-port production line, which is primarily dedicated to OEM customers. This proprietary process will substantially increase manufacturing capabilities and lower production costs. The manufacturing plant expansion is on schedule and will be operational during the third quarter of 2001.
In the second quarter Dynetek continued its expansion plans by further establishing a wholly owned subsidiary, Dynetek Europe GmbH. The plant located in Germany is expected to be fully operational in the fourth quarter of 2001. The operations are currently being certified to ISO 9002. The plant will manufacture and sell cylinders certified to ISO 11439. This operation will support marketing, sales and manufacturing of Dynetek's products in Europe, the United Kingdom and the Middle East.
Dynetek continued its commitment to meet market demand for its industry- leading product when it hired Ms. Andrea Cherkas, Vice President Sales and Marketing. Ms. Cherkas, will play an integral part in the day-to-day operations with primary responsibility to provide leadership of the Company's sales and marketing activities. Her experience in global industrial marketing, sales and business development will serve to enhance the current Dynetek management team.
Management's Discussion and Analysis
Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for the six months ended June 30, 2001 and the audited financial statements and MD&A for the year ended December 31, 2000.
Revenues
(thousands of Canadian dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
-------------------------------------------
Sales 2,006 1,780 3,160 2,365
Research and development
income 242 523 767 677
Interest income and other 356 - 903 -
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2,604 2,303 4,830 3,042
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Sales for the first six months of 2001 of $3.2 million were 34% higher than the same period in 2000. The 2001 second quarter sales of $2.0 million were 11% higher than the same period in 2000. During the first six months of 2001 a selection of customers who purchased the DyneCell fuel storage systems were: Marubeni Metals Corp., MAN Technologie AG, Thomas Built Buses, Wittke Waste Equipment Ltd, FAB Industries and Labrie Equipment.
Research and development income for the first six months of 2001 of $0.8 million was 14% higher than the same period of 2000. The second quarter of 2001 research and development income of $0.3 million was 40% lower than the same period in 2000. During the first six months of 2001 Dynetek was involved in co-funded research and development projects with several major OEMs. Due to the confidentiality agreements with these OEMs, Dynetek is unable to disclose the nature or application of these projects. The subsidies, which Dynetek receives from the OEMs regarding these projects, are based on completion of the project and therefore timing differences occur between when costs are incurred and funding is received.
Interest income and other for the first six months of 2001 was $0.9 million compared to nil for the same period in 2000. The second quarter of 2001 interest income and other was $0.4 million as compared to nil for the same period in 2000. Dynetek has $34.8 million cash balance invested in AAA rated securities for less than a 90 day term.
Cost of goods sold for the first six months of 2001 increased to $2.5 million compared to $1.8 million for the same period in 2000. The cost of goods sold for second quarter of 2001 was $1.6 million, a 23% increase over the same period in 2000. The gross margin for the first six months of 2001 was 20% compared to 25% for the same period of 2000. The gross margin for the second quarter of 2001 was 19%, comparable to the first quarter of 2001. The reduction in the gross margin between the six month periods is reflective of the Company's efforts to enhance the skilled base labour component in preparation for increased production in the third and fourth quarters.
General and administrative expense for the first six months of 2001 increased to $1.2 million compared to $0.4 million for the same period in 2000. For the second quarter of 2001, general and administrative expense was $0.6 million compared to $0.2 million in 2000. The Company continues to expand its operations, business systems and processes in order to capitalize on the opportunities identified in the Company's business plan. To manage the Company's growth, Dynetek's employee count has increased from 23 employees at June 30, 2000 to 42 employees for the same period in 2001. General and administrative expenses have also increased due to the requirements of a global public company, including investor relations activities and regulatory filing requirements.
Research and development expense for the first six months of 2001 increased to $1.1 million from $0.3 million for the same period in 2000. For the second quarter of 2001, research and development expense was $0.6 million compared to $0.2 million for the same period in 2000. The increase is due to the increase in the number of projects currently in progress in 2001 as well as the necessary infrastructure to support these projects. This increase confirms the Company's strategic plan to expand research and development programs. Currently, Dynetek is involved in 16 confidential development programs with seven major OEM's.
Marketing expense for the first six months of 2001 was $0.2 million, which is comparable with the same period in 2000. The marketing expense for the second quarter was $0.1 million, which is also comparable with the same period in 2000. The trade shows Dynetek attended in the first six months of 2001 included: the 12th Annual U.S. Hydrogen Meeting & Expo in Washington DC, Asia Pacific Natural Gas Vehicle Summit in Brisbane, Australia, European Natural Gas Vehicle Coalition in Malmo, Sweden, the Hannover Fair in Hannover, Germany, and the 11th Annual Canadian Hydrogen Conference & Expo in Victoria BC.
Amortization of process and product development costs in the first six months of 2001 was $0.4 million, which is comparable to the same period in 2000. The second quarter amortization of the process and product development costs in 2001 of $0.2 million are comparable to the same period in 2000.
Depreciation expense for the first six months of 2001 was $0.2 million, which is comparable to the same period in 2000. For the second quarter of 2001, depreciation expense of $0.1 million was also comparable to the same period in 2000. The majority of the capital expenditures that took place in 2001 and in the fourth quarter of 2000 relate to assets under construction. Assets under construction will not be depreciated until they are completed and commercially producing.
Net earnings (loss) for the first six months of 2001 was $(0.5) million or $(0.03) per share compared to $(0.3) million or $(0.02) per share for the same period in 2000. The loss for the second quarter was $(0.4) million or (0.02) per share compared to net income of $0.2 million or $0.01 per share for the same period in 2000. The loss in 2001 is mainly attributable to the expansion of the operations, and continued investment in research and development projects.
Capital Expenditures
(thousands of Canadian dollars)
(unaudited)
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
-------------------------------------------
Building 292 5 356 43
Manufacturing equipment 37 144 144 213
Office furniture and other
equipment 135 47 139 47
Computer hardware and software 46 8 61 13
Leaseholds and patents 152 - 152 -
Manufacturing equipment under
construction 2,308 - 3,198 -
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2,970 204 4,050 316
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Capital expenditures for the first six months were $4.1 million compared to $0.3 million for the same period of 2000. The second quarter of 2001 capital expenditures were $3.0 million compared to $0.2 million for the same quarter in 2000. Manufacturing equipment under construction represents cash deposits made to June 30, 2001 on asset construction and third party costs. At June 30, 2001 the Company had entered into $3.1 million in capital commitments with third parties for the purchase and delivery of certain assets, which will be completed in 2001. These commitments are to expand the current manufacturing facilities, and the acquisition of additional equipment for the proprietary single-port process, a new process complementary to the current production line. The efficiencies and high production capabilities of the new manufacturing process will contribute directly to cost reductions. With the required expansion to the Company's human resources, additions were made to the building, office furniture and computer hardware and software.
Financial Resources and Liquidity
As at June 30, 2001 Dynetek had cash and cash equivalents of $34.8 million compared to $39.2 million at December 31, 2000. A portion of this cash is budgeted to fund the Company's planned production expansion, expansion of sales and marketing and future research and development projects. The Company's actual funding requirements will vary depending on a number of factors, including an increase in CNG system sales on a global basis, the progress of the research and development projects and the development of additional strategic relationships with partners. The cash in the bank continues to be committed to capital expansion and research and development projects.
The Company's accounts receivable position at June 30, 2001 was $2.6 million compared to $3.0 million at December 31, 2000. This difference relates to the timing of sales orders and collection of receivables. Accounts payable at June 30, 2001 were $1.7 million compared to $1.8 million at December 31, 2000. The long-term debt at June 30, 2001 of $1.1 million relates to the research and development funding supplied by Canadian Energy Mines and Resources. These agreements allow Dynetek to retain the intellectual property and to receive long-term funding. During the six month period Dynetek was provided an additional $0.3 million of funding and repaid $0.4 to the government.
Outlook
The outlook for Dynetek continues to be exciting. The opportunities in the near and long term to provide lightweight fuel storage applications for CNG remain significant for Dynetek's growth.
Dynetek continues the trend of increasing cylinder sales in the global CNG market, both in existing and new segments. This increase is keeping the Company on track to approximately double cylinder sales from the prior fiscal year.
CNG sales allow Dynetek to maintain the support for research and development programs for compressed hydrogen, CNG and other compressed gases, including stationary and other mobile applications, and at the same time maintaining a strong balance sheet and cash position. To meet Dynetek's strategic goals, investments in business processes, infrastructure and research and development projects, the Company continues to forecast a loss in 2001.
Dynetek continues to maintain its leadership position in lightweight fuel storage systems for zero-emission hydrogen fuel cell vehicles. Although the timing of the commercialization of fuel cell vehicles is uncertain, Dynetek continues to forge relationships with major OEMs, like Ford, on their development programs, which are committed to maintaining competitive advantage and leadership positions. This leadership position has been confirmed by the Company's involvement with seven major OEMs on 16 confidential hydrogen development projects.
Dynetek remains cognizant of the fundamentals of a successful company, namely revenues, earnings, cash flow and strategic relationships. The Company remains confident and committed to its strategic plan in order to address these fundamentals. This is reflected in its increased penetration in the CNG market, new applications of its product and increased development programs with major OEMs in the hydrogen market.
Dynetek develops, produces and markets Advanced Lightweight Fuel Storage Systems for storing CNG for low emission CNG vehicles and compressed hydrogen for zero emission hydrogen fuel cell vehicles. The Dynetek advanced fuel storage system is designed with a seamless thin-wall aluminum liner with a full carbon fibre overwrap, and is marketed under the DyneCell brand name. Dynetek's common shares trade under the symbol DNK on the Toronto Stock Exchange.
Consolidated Balance Sheets
(thousands of Canadian dollars)
June 30, 2001 December 31, 2000
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents 34,751 39,197
Accounts receivable 2,580 3,002
Inventory 1,931 1,547
Prepaid expenses 97 110
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39,359 43,856
Capital assets 9,105 5,261
Process and product development costs 553 921
Future income tax assets 2,818 2,512
-------------------------------------------------------------------------
51,835 52,550
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 1,733 1,764
Current portion of long-term debt 75 367
-------------------------------------------------------------------------
1,808 2,131
Long-term debt 1,021 865
Shareholders' Equity
Share capital 50,247 50,247
Deficit (1,241) (693)
-------------------------------------------------------------------------
49,006 49,554
51,835 52,550
-------------------------------------------------------------------------
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See accompanying notes to the financial statements
Consolidated Statements of Operations and Deficit
(thousands of Canadian dollars except common shares and per
share amounts)
(unaudited)
Three months Six months
ended ended
June 30 June 30
2001 2000 2001 2000
-----------------------------------------------
Revenue
Sales 2,006 1,780 3,160 2,365
Research and development
income 242 523 767 677
Interest income and other 356 - 903 -
-------------------------------------------------------------------------
2,604 2,303 4,830 3,042
Expenses
Cost of goods sold 1,626 1,274 2,521 1,754
General and administrative 576 249 1,172 406
Research and product
development 616 157 1,147 262
Marketing 111 145 230 242
Amortization of process and
product development costs 184 185 368 369
Depreciation 103 113 206 210
Interest on long-term debt - 30 - 65
-------------------------------------------------------------------------
3,216 2,153 5,644 3,308
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Earnings (loss) before
income taxes (612) 150 (814) (266)
Provision for taxes
Future income taxes
(benefit) (230) - (306) -
Large corporations tax 21 - 40 -
-------------------------------------------------------------------------
(209) - (266) -
-------------------------------------------------------------------------
Net earnings (loss) (403) 150 (548) (266)
Deficit, beginning of period (838) (609) (693) (193)
-------------------------------------------------------------------------
Deficit, end of period (1,241) (459) (1,241) (459)
-------------------------------------------------------------------------
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Per Share Information
Net earnings (loss) per
share (0.02) 0.01 (0.03) (0.02)
Weighted average number of
common shares
outstanding 19,530,599 11,258,232 19,530,599 11,258,232
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See accompanying notes to the financial statements
Consolidated Statements of Cash Flows
(thousands of Canadian dollars)
(unaudited)
Three months Six months
ended ended
June 30 June 30
2001 2000 2001 2000
-----------------------------------------------
Cash flows provided by (used
for) operating activities
Net earnings (loss) (403) 150 (548) (266)
Items not involving cash
Amortization of process and
product development costs 184 185 368 369
Depreciation 103 113 206 210
Future income taxes (benefit) (230) - (306) -
-------------------------------------------------------------------------
(346) 448 (280) 313
Changes in non-cash working
capital
Accounts receivable (690) (1,228) 422 (1,559)
Inventory 126 (382) (384) (506)
Prepaid expense (15) 11 13 (16)
Accounts payable (144) 1,379 (31) 1,555
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(1,069) 228 (260) (213)
Investing activities
Additions to capital assets (2,970) (204) (4,050) (316)
Other assets - (248) - (248)
-------------------------------------------------------------------------
(2,970) (452) (4,050) (564)
Financing activities
Repayment of note payable - 12 - (19)
Advances, long-term debt - 144 248 -
Repayments, long-term debt (175) (19) (384) (28)
-------------------------------------------------------------------------
(175) 137 (136) (47)
Decrease in cash and cash
equivalents (4,214) (87) (4,446) (824)
Cash and cash equivalents,
beginning of period 38,965 337 39,197 1,074
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Cash and cash equivalents,
end of period 34,751 250 34,751 250
-------------------------------------------------------------------------
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Cash and cash equivalents includes a reduction for outstanding cheques. Interest income received during the six months ended June 30, 2001 was $0.9 million and $0.4 million for the three months ended June 30, 2001.
See accompanying notes to the financial statements
Selected Notes to Consolidated Financial Statements
Six months ended June 30, 2001
(thousands of Canadian dollars)
(unaudited)
The interim unaudited consolidated financial statements of Dynetek Industries Ltd. ("Dynetek" or "the Company") have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the year ended December 31, 2000. The interim unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2000.
1. Significant accounting policies
(a) Principle of consolidation
During February of 2001 the Company incorporated a wholly owned European
subsidiary, Dynetek Europe GmbH. This subsidiary has been included in the
consolidated financial statements.
2. Segmented information
The Company currently operates in one operating segment, which involves
the manufacture and sale of lightweight fuel storage systems. All of the
Company's operations and assets relating to current production were located in
Canada at June 30, 2001. Revenues attributed to foreign countries are based on
the location of the customer.
Three months Six months
ended June 30 ended June 30
2001 2000 2001 2000
------------------------------------
Revenue
Canada 45 397 547 495
United States 1,011 637 1,038 713
Japan 471 - 991 307
Germany 476 - 528 13
Other foreign countries 3 746 56 837
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2,006 1,780 3,160 2,365
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Forward-Looking Statements
In addition to historical information, this Second Quarter Report contains forward-looking statements that reflect Dynetek's plans, estimates, intentions, expectations and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and are encouraged to review the section in the Management's Discussion and Analysis titled 'Business Risks' contained in the 2000 Annual Report for a discussion of factors that could effect Dynetek's future performance.
Corporate Information
Corporate Head Office
4410 - 46th Avenue SE
Calgary, Alberta, Canada
T2B 3N7
Tel (403) 720-0262
Fax (403) 720-0263
Web site: http://www.dynetek.com
Board of Directors
Heinz O. Portmann(*)
Chairman of the Board, President,
Chief Executive Officer
Dynetek Industries Ltd.
Calgary, Alberta
Andrew T.B. Stuart (xxx)
Vice Chairman
Stuart Energy Systems Corporation
Toronto, Ontario
Peter A. Leus(*)(xx)
Director Starlaw Holdings Ltd.
Montreal, Quebec
Michael J. Lang(*)(xx)
Chairman
Stonebridge Merchant Capital Corp.
Calgary, Alberta
Larry A. Wright(xxx)
Executive Vice President
Multimatic Inc.
Markham, Ontario
(*) Audit Committee member
(xx) Compensation Committee member
(xxx) Corporate Governance Committee member
Officers and Management
Heinz O. Portmann
Chairman of the Board, President
Chief Executive Officer
Michael D. Portmann
Secretary and General Manager
Robb D. Thompson
Chief Financial Officer
Ulrich Imhof
Vice President, Engineering
Rene Rutz
Vice President, Special Projects
Andrea A. Cherkas
Vice President, Marketing and Sales
Patrick B. Murtha
Operations Manager
Jim A. McDonald
Manager Quality & Product Certification
Karen Y. Minton
Corporate Controller
Bankers
Bank of Nova Scotia
Auditors
KPMG LLP
Calgary, Alberta
Legal Counsel
Gowling Lafleur Henderson LLP
Transfer Agent and Registrar
CIBC Mellon Trust Company
with offices in Toronto, Montreal and Calgary
Stock Listing
Toronto Stock Exchange
Trading Symbol: DNK
Investor Relations
To obtain additional information about Dynetek
or to be placed on our supplemental mailing list for
quarterly reports please Contact:
Dynetek Industries Ltd.
Investor Relations
4410 - 46th Avenue SE
Calgary, Alberta, Canada
T2B 3N7
Fax: (403) 720-0263
Email: investor@dynetek.com
For further information: Heinz Portmann, Chairman of the Board, President and Chief Executive Officer, Robb Thompson, Chief Financial Officer, Dynetek Industries Ltd., Tel: (403) 720-0262, Toll-free: 1-888-396-3835, Fax: (403) 720-0263, Web: www.dynetek.com