- Email: [email protected]
H2O Innovation, Canada
September 2005
Filtration Industry Analyst
Donaldson Co Inc, USA
H2O Innovation, Canada
Key Figures (US$ million) Third quarter ended 30.4
Key Figures (C$ million) Third quarter ended 31.3 2004
2005
2004
Net Sales
411.7
370.6
Sales
0.8
0.8
Cost Of Sales
277.7
Gross Margin
133.9
250.4
Cost Of Sales
0.6
0.6
120.2
Gross Margin
0.2
0.2
Operating Expenses
90.9
82.2
Loss Before Exceptional Items
Operating Income
43.1
38.0
(0.3)
(0.3)
Net Profit / (Loss)
(0.3)
(0.3)
Earnings Before Income Taxes
41.6
38.0
Net Earnings
31.3
29.6
Nine months ended 30.4 Net Sales
Nine months ended 31.3 2005
2004
Sales
2.4
2.8
2005
2004
Cost Of Sales
1.6
1.8
Gross Margin
1173.0
1031.0
Cost Of Sales
801.4
700.8
0.8
1.1
330.2
Loss Before Exceptional Items
Gross Margin
371.6
(0.4)
(0.4)
Operating Expenses
255.5
227.6
Net Profit/(Loss)
(0.4)
(0.5)
Operating Income
116.2
108.3
Earnings Before Income Taxes
115.7
107.3
85.4
80.1
Net Earnings
COMMENT Donaldson Co posted record third quarter net income of US$31.3 million, compared with US$29.6 million a year earlier. Sales were a record US$411.7 million, up 11% on the 2004 figure. For the nine-month period, net income was at a new high of US$85.4 million compared with US$80.1 million in 2004. Sales were a record US$1.173 billion, up from US$1.031 billion in the prior year. Engine products sales were US$243.2 million in the quarter, an increase of 11% from last year, while year-todate sales were up 15% on the 2004 figure to US$680.2 million. Similarly, the Industrial Products division had revenues for the quarter up 11% to US$168.5 million, and its
nine-months sales were up 12% to US$492.8 million. “Donaldson delivered a solid third quarter,” said Bill Cook, president and ceo. “Our continued cost reduction efforts helped our gross margin rebound back to historical levels. Gas turbine’s weak third quarter sales caused their operating expenses to be a higher-than-normal percent of sales, but we expect them to come back in-line with a stronger fourth quarter. Sarbanes-Oxley compliance costs and start-up costs at our new disk drive filter plant in Thailand also contributed to higher operating expenses.” Cook said the company was optimistic about the overall business conditions in its markets and expected to finish fiscal 2005 on a high note. ■
COMMENT H2O Innovation’s third quarter performance was below its own expectations, due to a decline in sales. Revenue for the quarter was C$790 559, down from C$812 478 in the same quarter a year earlier, reflecting low sales to the Canadian maple industry, as well as production delays. The company posted a net loss of C$311 585 for the quarter and a net loss of C$375 739 for the corresponding nine-month period. Despite the losses, these figures represented an improvement on the previous year. Earnings before interests, taxes and depreciation (EBITD) were C$117 715 for the nine-month period, up from C$12 090 a year earlier. Guy Goulet, H2O ceo, said the company continued to see the development of sales revenue as the key towards improved profitability. Despite the weak turnover performance in the third quarter,
Goulet said the company had embarked upon important marketing efforts directed towards targeted applications for water treatment applications, including campgrounds, vacation camps, dairies and municipal works. In addition, he said the company’s recent opening of a news sales office and appointment of further sales personnel, should bring benefits in the near future. During the quarter H2O Innovation announced its planned acquisition of Biosor Technologies, a company that has developed a filtration technology based on peat and wood chips for the purification of organic pollutants found in municipal, agri-food and agricultural effluents. The acquisition has subsequently been completed for a consideration payable in H2O Innovation shares that may vary from C$325 000 to C$1.575 million depending on Biosor sales over the next five years. ■
9
COMPANY WATCH
2005
Filtration Industry Analyst
Donaldson Co Inc, USA
H2O Innovation, Canada
Key Figures (US$ million) Third quarter ended 30.4
Key Figures (C$ million) Third quarter ended 31.3 2004
2005
2004
Net Sales
411.7
370.6
Sales
0.8
0.8
Cost Of Sales
277.7
Gross Margin
133.9
250.4
Cost Of Sales
0.6
0.6
120.2
Gross Margin
0.2
0.2
Operating Expenses
90.9
82.2
Loss Before Exceptional Items
Operating Income
43.1
38.0
(0.3)
(0.3)
Net Profit / (Loss)
(0.3)
(0.3)
Earnings Before Income Taxes
41.6
38.0
Net Earnings
31.3
29.6
Nine months ended 30.4 Net Sales
Nine months ended 31.3 2005
2004
Sales
2.4
2.8
2005
2004
Cost Of Sales
1.6
1.8
Gross Margin
1173.0
1031.0
Cost Of Sales
801.4
700.8
0.8
1.1
330.2
Loss Before Exceptional Items
Gross Margin
371.6
(0.4)
(0.4)
Operating Expenses
255.5
227.6
Net Profit/(Loss)
(0.4)
(0.5)
Operating Income
116.2
108.3
Earnings Before Income Taxes
115.7
107.3
85.4
80.1
Net Earnings
COMMENT Donaldson Co posted record third quarter net income of US$31.3 million, compared with US$29.6 million a year earlier. Sales were a record US$411.7 million, up 11% on the 2004 figure. For the nine-month period, net income was at a new high of US$85.4 million compared with US$80.1 million in 2004. Sales were a record US$1.173 billion, up from US$1.031 billion in the prior year. Engine products sales were US$243.2 million in the quarter, an increase of 11% from last year, while year-todate sales were up 15% on the 2004 figure to US$680.2 million. Similarly, the Industrial Products division had revenues for the quarter up 11% to US$168.5 million, and its
nine-months sales were up 12% to US$492.8 million. “Donaldson delivered a solid third quarter,” said Bill Cook, president and ceo. “Our continued cost reduction efforts helped our gross margin rebound back to historical levels. Gas turbine’s weak third quarter sales caused their operating expenses to be a higher-than-normal percent of sales, but we expect them to come back in-line with a stronger fourth quarter. Sarbanes-Oxley compliance costs and start-up costs at our new disk drive filter plant in Thailand also contributed to higher operating expenses.” Cook said the company was optimistic about the overall business conditions in its markets and expected to finish fiscal 2005 on a high note. ■
COMMENT H2O Innovation’s third quarter performance was below its own expectations, due to a decline in sales. Revenue for the quarter was C$790 559, down from C$812 478 in the same quarter a year earlier, reflecting low sales to the Canadian maple industry, as well as production delays. The company posted a net loss of C$311 585 for the quarter and a net loss of C$375 739 for the corresponding nine-month period. Despite the losses, these figures represented an improvement on the previous year. Earnings before interests, taxes and depreciation (EBITD) were C$117 715 for the nine-month period, up from C$12 090 a year earlier. Guy Goulet, H2O ceo, said the company continued to see the development of sales revenue as the key towards improved profitability. Despite the weak turnover performance in the third quarter,
Goulet said the company had embarked upon important marketing efforts directed towards targeted applications for water treatment applications, including campgrounds, vacation camps, dairies and municipal works. In addition, he said the company’s recent opening of a news sales office and appointment of further sales personnel, should bring benefits in the near future. During the quarter H2O Innovation announced its planned acquisition of Biosor Technologies, a company that has developed a filtration technology based on peat and wood chips for the purification of organic pollutants found in municipal, agri-food and agricultural effluents. The acquisition has subsequently been completed for a consideration payable in H2O Innovation shares that may vary from C$325 000 to C$1.575 million depending on Biosor sales over the next five years. ■
9
COMPANY WATCH
2005