Dynetek Industries Ltd. Reports Third Quarter Results
CALGARY, Nov. 10 /CNW/ - Dynetek Industries Ltd. ("Dynetek") reported today its results for the three and nine months ended September 30, 2010. The full unaudited interim consolidated financial statements and MD&A have been filed on SEDAR at www.sedar.com and on Dynetek's website at www.dynetek.com.
OPERATIONAL HIGHLIGHTS
- Executed a letter of intent with potential Indian joint venture partner to access Indian market
- Commenced discussions with potential Chinese joint venture partner to access Chinese market
- Executed supply agreement with Timberloch CNG Partners to be their exclusive cylinder supplier to a large bus fleet operator in Istanbul, Turkey
- Received order for 29 hydrogen fuel storage systems from major European bus manufacturer
- Commenced delivery of hydrogen valves for pre-production hydrogen vehicles for one European based and two Asian based Original Equipment Manufacturers ("OEMs")
- Year-to-date cylinder unit sales have increased 16% over the same period in 2009
Financial Highlights
(tabular amounts in thousands of Canadian dollars, except share capital and per share data)
(unaudited)
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(1) EBITDA, non-cash working capital and working capital are non-GAAP financial measures. Dynetek defines EBITDA as earnings before interest, taxes, stock based compensation, foreign exchange gain or loss, depreciation, and amortization. Dynetek defines non-cash working capital as current assets less cash, restricted cash and current liabilities and working capital as current assets less current liabilities. Dynetek believes these non-GAAP financial measures provide investors and analysts with useful information so that they can better understand the financial results and perform a better analysis of Dynetek's growth and profitability potential.
Cylinder and system sales for the nine months ended September 30, 2010 were $18.0 million, a decrease of 16% from $21.5 million for the same period of 2009. The year-to-date decrease in 2010 sales, compared to 2009, reflects the appreciation of the Canadian dollar against the US dollar and Euro. Dynetek's North American sales are primarily transacted in US dollars and virtually all European sales are transacted in Euros. The Canadian dollar has appreciated 13% against the US dollar and 17% against the Euro, comparing 2010 year-to-date foreign exchange rates against 2009 rates for the same period.
Cylinder and system sales for the three months ended September 30, 2010 were $4.8 million, a decrease of $2.6 million or 35% for the same period in 2009. The decrease was the result of a significant number of 2010 sales orders from European bus manufacturer customers being delivered during the second quarter of 2010. Dynetek's North American operations cylinder and system sales remained consistent with $2.9 million recorded in the third quarter of 2010 compared to $3.0 million for the same quarter of 2009.
Three months | Nine months | ||||
(thousands of Canadian dollars) | ended September 30 | ended September 30 | |||
(unaudited) | |||||
2010 | 2009 | 2010 | 2009 | ||
Cylinder and system sales | |||||
European operations | 1,902 | 4,408 | 12,254 | 16,553 | |
North American operations | 2,923 | 3,025 | 5,762 | 4,934 | |
4,825 | 7,433 | 18,016 | 21,487 |
Dynetek's revised North American sales focus has resulted in a 46% increase in North American cylinder unit sales in the first nine months of 2010 compared to the same period in 2009. Fiscal 2010 has seen a switch in product mix, with a greater focus on cylinders versus systems in North America. The shift in product mix and the appreciation of the Canadian dollar has resulted in a disproportionate increase in North American revenue when compared to the increased cylinder unit sales. Dynetek expects 2010 revenue and cylinder unit sales in North America to exceed 2009 revenue and unit sales.
Dynetek's European operations have experienced lower than anticipated natural gas bus system activity. However, cylinder unit sales for nine months ended September 2009 remain consistent with cylinder unit sales from the same period in 2010. Dynetek expects 2010 cylinder unit sales from its European operations to approximate 2009 European unit sales.
Research and development income for the nine months ended September 30, 2010 was $1.8 million, down 39% or $1.1 million from the same period in 2009. Research and development income for the three months ended September 30, 2010 was $0.7 million, down 23% or $0.2 million from the same period in 2009. During the three and nine months ended September 30, 2010, research and development income was lower due to timing of start-up of its major hydrogen contracts and completion of the Magna Steyr contract by December 31, 2009. Major deliverables under the hydrogen contracts will begin in the fourth quarter of 2010 and continue into 2011.
The decrease in research and development income was partially offset by higher hydrogen valve sales in the first nine months of 2010 compared to the same period of 2009. 2010 hydrogen valve sales have increased 88% compared to the first nine months of 2009 as demand for hydrogen valves increased due to increased activity in various OEM projects.
Gross margin for the nine months ended September 30, 2010 has increased to 22% from 20% in the same period of 2009. The increase in gross margin is a combination of improved input pricing and the shift in product mix from systems to cylinders.
Dynetek continues to maintain sufficient levels of working capital. At September 30, 2010 working capital was $12.7 million compared to $13.7 million at December 31, 2009. Maintaining sufficient levels of working capital will continue to allow Dynetek to fund hydrogen research and development and develop new regions that demonstrate CNG growth.
OUTLOOK
Dynetek is focused on generating increased worldwide sales from its commercialized CNG products and continuing to develop opportunities in the long-term hydrogen market through research and development activities with the global OEMs. Dynetek also continues to develop applications for its cylinders in the bulk transportation and stationary storage segments.
Geographic expansion will be the main driver of worldwide sales growth. While Europe and North America continue to provide the majority of near term sales, Dynetek is actively expanding its presence in the Asia-Pacific market through its expanding joint venture relationships.
The Asia-Pacific market represents significant opportunity for revenue growth. Demand for CNG cylinders in Asia-Pacific market is expected to increase materially over the next 5 years. The International Gas Union issued its report, "Report on Study Group 5.3 - Natural Gas Vehicles" at the IGU World Gas Conference in October 2009, which estimated that by 2015, there will be an additional 7.9 million natural gas vehicle equivalents in Asia-Pacific compared to only 0.8 million additional in Europe and 0.2 million additional in North America.
Our Korean joint venture with Sejung Co. Ltd. represents significant progress in accessing this important market. In addition to Korea, our cylinders are now fully certified in India and we have executed a letter of intent with a potential joint venture partner in India. We expect to have the joint venture finalized by the end of 2010 with initial sales beginning in the first half of 2011. Discussions are underway with a potential Chinese joint venture partner and it remains our intent to establish a Chinese joint venture by the end of the second half of 2011. For additional information on the Asia-Pacific market, please refer to the Chairman's Remarks at our June 16th, 2010 Annual and Special Meeting as posted on our web site.
With the expected increase in demand for cylinders over the mid term from the North American and Asia-Pacific markets, Dynetek has committed additional production resources and has undertaken a capital reinvestment program in its Calgary production facility to ensure production capacity and reliability are sufficient to meet market demand.
ABOUT DYNETEK
Dynetek Industries Ltd. is a world-leading participant in the global clean technology space and a leader in the design and manufacture of proprietary fuel storage systems. Dynetek designs, produces and markets one of the lightest and most advanced fuel storage and refueling systems for compressed natural gas, low emission vehicles and compressed hydrogen, zero-emission fuel cell vehicles. Dynetek is recognized around the world for its solutions-of-choice to the alternate fuel vehicle sector, evidenced by strategic relationships with major manufacturers around the globe. Dynetek is listed on the Toronto Stock Exchange, symbol: DNK.
FORWARD LOOKING STATEMENTS
In addition to historical information, this news release contains forward-looking statements and should be read in conjunction with the financial statements and related notes for the year ended December 31, 2009 and quarterly interim financial statements for 2010. Readers are encouraged to review the section in the annual Management's Discussion and Analysis titled "Principal Risks and Uncertainties" for a discussion of factors that could affect Dynetek's future operations and financial results.
Certain information set forth in this document contains forward-looking statements or information ("forward-looking statements"). Forward-looking statements are not based on historical facts, but rather reflect management's expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. The use of any of the words "plan", "expect", "project", "intend", "believe", "should", "anticipate", "estimate" or other similar words, or statements that certain events or conditions "may" or "will" occur are typically intended to identify forward-looking statements. Forward- looking statements contained in this document include, without limitation, expectations as to 2010 revenue and cylinder unit sales compared to 2009, timing of major deliverables under hydrogen contract, timing of finalization of Indian joint venture, timing of establishment of Chinese joint venture and commencement of sales and expected increase in demand for cylinders.
Forward-looking statements are based on a number of factors and assumptions which have been used to develop such statements but which may prove to be incorrect. Although Dynetek believes that the expectations and assumptions reflected in such forward-looking statements are reasonable, undue reliance should not be placed on forward-looking statements because Dynetek can give no assurance that such expectations and assumptions will prove to be correct. With respect to the forward- looking statements contained in this document assumptions have been made regarding, among other things: (i) industry demand; (ii) expectations regarding technology adoption rates for certain countries; (iii) the impact of governmental regulatory regimes and tax, environmental and other laws; (iv) prices of commodities; and the economic condition in certain countries. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward looking statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: (i) changes in general economic, market and business conditions of certain countries; (ii) volatility in commodity prices and exchange rates; (iii) access to capital; (iv) competition for, among other things, capital and skilled personnel; and, (v) actions by governmental or regulatory authorities including changes in environmental legislation. The Company cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. Additional information on these and other factors that could affect operations or financial results can be found in the Company's Annual Information Form available on SEDAR at www.sedar.com. The Company does not undertake any obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities law.
For further information: For further information:
Douglas Pigot, Executive Chairman
Dynetek Industries Ltd.
4410 - 46th Avenue SE
Calgary, Alberta T2B 3N7
Tel Calgary: 403-720-0262
Toll free: 1-888-396-3835
Web: www.dynetek.com
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