H2O Innovation reports fiscal 2012 year-end results - Record-high revenues, up by 30%

Alternext: MNEMO: ALHEO

  • Revenues of $35.9 million, up by 30% compared to $27.6 million in fiscal 2011.
  • Gross profit at 23.0%, down compared to 29.5% in fiscal 2011.
  • Adjusted EBITDA1 at ($4,538), compared to $325,292 in fiscal 2011.
  • Operating, selling and administrative expenses at 24.3% of revenues, down compared to 30.3% in fiscal 2011 due to the year's higher revenues.
  • Net loss of ($8.1 million), down compared to ($1.4 million) in fiscal 2011 due to goodwill impairment.
  • Operating activities generated $815,699 in net cash, compared to ($1,563,185) of net cash used in fiscal 2011.
  • Order backlog still above the $20 million mark.

All amounts in Canadian dollars unless otherwise stated.

QUEBEC CITY, Sept. 26, 2012 /CNW Telbec/ - (TSXV: HEO) - H2O Innovation Inc. ("H2O Innovation" or the "Company") announces its results for the 2012 fourth quarter and 2012 fiscal year ended June 30, 2012. H2O Innovation's fiscal 2012 results were marked by record-high revenues, at $35.9 M, mainly generated by its water treatment systems & equipment business sector. The Company's revenues increased by $8.3 M in 2012 compared to fiscal 2011, up by nearly 30%. Net cash generated by the Company's operating activities amounted to $815,699 in fiscal year 2012 compared to ($1,563,185) of net cash used in operating activities during the previous fiscal year.

"Fiscal 2012 has been a challenging year for us. Our revenues from water treatment systems and equipment increased by more than 45%, from $15.6 M in 2011 to $22.7 M in 2012. This increase, which mainly occurred during the third and fourth quarters of fiscal 2012, was due to the conversion into revenues of the order backlog's largest projects that moved from their initial design and engineering phases to the higher revenue-generating phase. As expected with this high level of activities, our project and production teams were under a lot of pressure, which made us realize that we needed to change our approach from a 'product' culture to a 'project' culture. We have already taken actions to fundamentally change our culture of project execution and management", commented Frédéric Dugré, President and Chief Executive Officer of H2O Innovation.

The significant growth in the Company's revenues for 2012 compared to previous fiscal year is not reflected in gross profit. The Company's operations in fiscal 2012 generated a deceiving 23.0% gross profit, compared with 29.5% in 2011. The main factors that affected gross profit over the year are the different revenues proportion of sales of specialty chemicals versus sales of water treatment systems (37% in 2012 vs. 43% in 2011); the reallocation of resources completed during the first quarter of fiscal 2012; and one large project that was realised in fiscal 2012 and impacted negatively the gross profit by 2.0%.

Selected financial data
Three-month periods
ended on June 30,
Twelve-month periods
ended on June 30,
  2012 2011 2012 2011
  $ $ $ $
Revenues 11,561,332 8,086,202 35,909,907 27,632,266
Gross profit 2,237,294 2,029,633 8,275,358 8,164,191
Gross profit 19.4% 25.1% 23.0% 29.5%
Operating expenses 178,487 307,441 642,880 1,225,331
Selling expenses 1,094,547 1,012,877 3,906,263 3,689,387
Administrative expenses 1,409,303 962,218 4,206,086 3,467,886
Net loss 880,620 (81,071) (8,054,860) (1,359,380)
Basic and diluted loss per share 0.014 (0.002) (0.134) (0.023)
Adjusted EBITDA (483,798) (15,652) (4,538) 325,292

The net loss amounted to ($8,054,860) (or $0.134 per share) for fiscal 2012, compared to ($1,359,380) (or $0.023 per share) in fiscal 2011. Part of the 2012 net loss is due to the goodwill impairment charge and impairment of intangible assets recorded in the third quarter of fiscal 2012, which amounted to $8.2 M and $0.4 M respectively.

Adjusted EBITDA for fiscal year 2012 was ($4,538) compared to $325,292 for fiscal 2011. The adjusted EBITDA was affected negatively in fiscal 2012 by challenging issues in the project execution affecting negatively the gross profit derived from manufacturing contracts and by a nominal increase in operating, selling and administrative expenses, which proportion nevertheless decreased to 24.3% of total 2012 revenues, from 30.3% in fiscal 2011.

Financial results for the fourth quarter of 2012
Despite a significant revenue increase of 43.0% in the 2012 fourth quarter compared to the same quarter of the previous fiscal year, the Company's financial results were impacted by a lower gross profit and non-recurring expenses.

For the quarter ended June 30, 2012 the gross profit was impacted negatively by two large projects and by the provision for slow moving and obsolete inventory amounting to $50,000.

The fourth quarter was also affected by termination costs related to the elimination of top management positions, by an allowance for doubtful accounts for a distributor of maple syrup production products within the consumables operations and by additional professional fees related to the impairment testing.

The fourth quarter net earnings are caused by the tax effects of the expired warrants recorded in equity and for which the Company reversed a valuation allowance to use the tax losses carried forward and exploration expenses against these tax effects.

The Company's lower than expected performance brought its management team in the fourth quarter of fiscal year 2012 to work with a strategic consulting firm to conduct a review of the Company's general performance and strategic orientation. The suggestions contained in the consulting firm's report aimed at realigning the Company's resources to gain efficiency, accountability and performance in project execution.

The most important change that has occurred since June 30, 2012 is that the Company's engineering department is now structured according to each one's expertise. The Company can now rely on an expertise in electrical & controls, an expertise in mechanical engineering & systems, and an expertise in process & application. Also, an independent group of project managers has been created for an improved client interface, supported by a commissioning group dedicated to the start-up of systems. A service & after-sales group will continue to ensure long-term customer support.

"Through these changes we seek to attain 'operational excellence' in the execution of our projects in order to better answer our clients' needs and thus position ourselves at the cutting edge of the water treatment industry as a first-class complete solution provider. We also expect to improve gross profit on our system sales. We anticipate that this important reorganization will allow us to reduce our selling, operating and administrative expenses as well as to increase internal accountability in each step of project execution in order to achieve our targeted objectives. We are confident this new structure will lay solid and enduring foundations and will bring positive achievements", stated Frédéric Dugré.

The Company also brought in $16.3 M in new bookings for water treatment systems and equipment over fiscal 2012, which is below expectations. However, these new bookings maintained the order backlog above the $20.0 M mark as of June 30, 2012.

"We remain confident to secure new systems sales in this coming fiscal year as our sales team is very active in bidding activities for municipal and industrial opportunities. Notably, the recent commissioning of a few municipal drinking water plants using ultrafiltration technologies for surface water treatment springboards our business towards visibility to secure additional similar projects in both Canada and the United States. Compared to last year, we are seeing a greater number of municipal opportunities requiring ultrafiltration. We believe that our 'open source' design approach, being the interchangeability of the UF membrane modules, gives us an important advantage towards the competition as it provides greater operational flexibility and reduced OPEX for the end-users", added Frédéric Dugré.

The Company will also continue to work on a better integration of its client approach in a single point of responsibility for the design and operation of systems, based on its hybrid offering of systems and specialty chemicals and other consumables. As the Company is moving into 2013 fiscal year, its strategy is to maintain a double-digit revenue growth for its sales of high-margin specialty chemicals and consumables, which increased by 10%, from $12.0 M in 2011 to $13.2 M in 2012.

Conference call and webcast
H2O Innovation will host a conference call today at 10:00 a.m. (Eastern Time) to review the results. The call will begin with a presentation by the management. A question-and-answer period will follow. A slide presentation intended for simultaneous viewing during the call will be available before the call this morning on the Financial Reports and Webcasts page of the Investors section of the Company's website.

Shareholders, analysts and institutional investors are invited to participate. The North American toll-free number to dial for access is 1 800-711-9538 (North America) and international participants are invited to dial +1 416-640-5925. The participant passcode is 4644409. Media representatives and other interested parties may participate in listen only mode or may listen to the live webcast of the conference call (audio and slides) accessible through H2O Innovation's website at www.h2oinnovation.com. The webcast will remain available for replay on the Company's website for 90 days in the Investors section.

The annual financial report is available on www.h2oinnovation.com and on NYSE Euronext Alternext's site. Additional information on the Company is also available on SEDAR (www.sedar.com).

Prospective disclosures
Certain statements set forth in this press release regarding the operations and the activities of H2O Innovation as well as other communications by the Company to the public that describe more generally management objectives, projections, estimates, expectations or forecasts may constitute forward-looking statements within the meaning of securities legislation. Forward-looking statements concern analysis and other information based on forecast future results and the estimate of amounts that cannot yet be determined. Forward-looking statements include the use of words such as "anticipate", "if", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "potential", "predict", "project", "should" or "will", and other similar expressions, as well as those usually used in the future and the conditional, notably regarding certain assumptions as to the success of a venture. Those forward-looking statements involve a number of risks and uncertainties, which may result in actual and future results of the Company to be materially different than those indicated. Information about the risk factors to which the Company is exposed is provided in the Annual Information Form dated September 25, 2012 available on SEDAR (www.sedar.com). Unless required to do so pursuant to applicable securities legislation, H2O Innovation assumes no obligation to update or revise forward-looking statements contained in this press release or in other communications as a result of new information, future events and other changes.

About H2O Innovation
H2O Innovation provides integrated technological water treatment solutions based on membrane filtration technology to municipal, energy & mining end-users. H2O Innovation designs state-of-the-art custom-built water treatment systems for the production of drinking water and industrial process water, the reclamation and reuse of water, and the treatment of wastewater, while providing a complete line of specialty chemicals and consumables for membrane filtration and reverse osmosis systems. With more than 110 employees and seven locations in North America, H2O Innovation is also a founding partner of H2O Innovation India, a joint venture based in Mumbai, India. Shares of H2O Innovation are listed on the TSX Venture Exchange (HEO) and the NYSE Euronext Alternext Exchange (MNEMO: ALHEO). For more, visit www.h2oinnovation.com.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) nor the Alternext Exchange accepts responsibility for the adequacy or accuracy of this release.


1 The definition of adjusted earnings before interest, tax depreciation and amortization (adjusted EBITDA) does not take into account the Company's changes in fair value of contingent considerations, impairment of intangible assets, impairment of goodwill, stock-based compensation costs and share of (earnings) loss in a joint venture. The definition of adjusted EBITDA used by the Company may differ from those used by other companies. 






For further information:


H2O Innovation Inc.


Marc Blanchet
+1 418-688-0170

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