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Press release from CNW Group

EcoSynthetix Reports 2012 Second Quarter Results

Monday, August 13, 2012

EcoSynthetix Reports 2012 Second Quarter Results17:47 EDT Monday, August 13, 2012BURLINGTON, ON, Aug. 13, 2012 /CNW/ - EcoSynthetix Inc. ("EcoSynthetix" or the "Company"), a renewable chemicals company that produces a family of commercially proven bio-based products, today announced its financial results for the three and six months ended June 30, 2012. Financial references are in U.S. dollars unless otherwise indicated.Second Quarter 2012 HighlightsWon one new customer during the quarter and three customers subsequent to the end of the period, bringing the total new customers won during 2012 to eightNew customers generated 20% of total sales during the quarterSigned a three-year contract with FutureMark Paper Company for a minimum of 2.5 million dry pounds of EcoSphere® biolatex® binders annually concurrent with an agreement to install a dry-material handling solution at its mill in Alsip, Illinois, subsequent to the end of the period"We continue to successfully convert mill trials to customers, winning four new customers since the end of the first quarter. While year-over-year net sales were impacted by a specific Asian account, net sales grew by 39% excluding that customer," said John van Leeuwen, Chief Executive Officer of EcoSynthetix. "This growth reflects our continued confidence in the value that our EcoSphere® biolatex® binders offer customers as an alternative to petroleum-based binders. The power of our production process technology is clear even in the face of a recent increase in corn prices, as we maintain our low-cost advantage compared with the volatility and high price of petroleum alternatives."Financial SummaryNet SalesNet sales for the three months ended June 30, 2012 (Q2 2012) were $3.7 million compared to $5.6 million for the three months ended June 30, 2011 (Q2 2011). The difference was primarily attributable to $2.9 million in lower sales to a major customer in the Asia Pacific region compared to the prior year. Net sales increased in Q2 2012 by $0.5 million in North America, $0.4 million in EMEA and a $0.1 million in Latin America compared with the same period last year. Excluding the impact of the sales to the major Asian customer, sales increased by 39.4% during Q2 2012 compared to the same period last year.Net sales for the year-to-date (YTD) period were $7.7 million compared to $11.8 million in the same period last year. The difference was primarily attributable to lower sales in Asia Pacific of $5.9 million partially offset by an increase in sales of $0.9 million and $0.6 million in North America and EMEA respectively. Sales decreased in Asia Pacific principally due to lower purchases from a major customer. Excluding the impact of this customer, sales increased 58.0% for YTD period in 2012 compared to the same period last year. Sales from new customers accounted for 21.0% of total sales for the YTD period.Gross ProfitGross profit was $0.6 million or 16.7% of sales in Q2 2012 compared to $1.4 million or 24.1% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch, lower sales price and higher manufacturing depreciation.For the YTD period, gross profit was $1.4 million or 18.0% of sales compared to $2.8 million or 24.2% in the same period last year. The change in gross profit was principally due to lower sales volume, increased raw material input costs related to corn starch and higher manufacturing depreciation partially offset by an increase in sales price.Manufacturing depreciation in 2012 increased as a result of commissioning two 80 million pound production lines at the Tennessee and the Netherlands facilities. Gross profit as a percentage of sales, adjusted for manufacturing depreciation, was 22.9% and 23.6% for Q2 2012 and YTD, respectively, compared with 25.9% in each of the same two periods last year.Selling, General and Administrative(excludes share-based compensation, depreciation and amortization and foreign exchange loss or gain)Selling, general and administrative (SG&A) costs were $2.3 million in Q2 2012 compared to $2.0 million in the same period last year. For the YTD period, SG&A costs were $4.7 million compared to $3.0 million for the same period last year. The change was principally due to higher salaries and benefits and overhead costs associated with increased headcount.Research and Development Research and development (R&D) costs were $1.0 million in Q2 2012 compared to $0.3 million for the same period last year. For the YTD period, R&D costs were $2.0 million compared to $0.7 million for the same period last year. The Company continues to enhance its intellectual property base for new product development of its bio-based technology platforms to support market expansion. Adjusted EBITDA1Adjusted EBITDA was ($2.4) million in Q2 2012, compared to $(0.8) million in the same period last year. For the YTD period, adjusted EBITDA was ($5.0) million compared to ($0.6) million in the same period last year. Adjusted EBITDA was lower due to increased operating expenses and lower gross profit.Net LossNet loss in Q2 2012 was $2.8 million, or $0.05 per common share (basic and fully diluted), compared to a net loss of $192.0 million, or $177.95 per common share (basic and fully diluted), for same period last year. For the YTD period, net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $248.1 million or $264.57 per share (basic and fully diluted) in the prior period.The pro-forma (before fair value charges) net loss in Q2 2012 was $2.8 million or $0.05 per share (basic and fully diluted) compared with a pro-forma net loss of $1.1 million or $1.01 per share (basic and fully diluted) in the same period last year. For the YTD period, the pro-forma net loss was $5.7 million, or $0.10 per share (basic and fully diluted) compared to $1.2 million or $1.33 per share (basic and fully diluted) in the same period last year.Liquidity Working capital was $106.2 million at June 30, 2012 compared to working capital of $113.8 million at December 31, 2011.  The decrease was principally due to cash utilized in operating and investing activities. Notice of Conference CallEcoSynthetix will host a conference call on Tuesday, August 14, 2012 at 8:30AM ET to discuss its financial results.  John van Leeuwen, CEO, and Robert Haire, CFO, will co-chair the call. All interested parties can join the call by dialing (647) 427-7450 or (888) 231-8191. Please dial in 15 minutes prior to the call to secure a line. A live audio webcast of the conference call will also be available at www.ecosynthetix.com. The presentation will be accompanied by slides, which will be available via the Company's website. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.1Non-IFRS Financial MeasuresThis press release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of results of operations of EcoSynthetix from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the financial information of EcoSynthetix reported under IFRS. The Company uses non-IFRS measures such as Adjusted EBITDA to provide investors with a supplemental measure of operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess the Company's ability to meet its capital expenditure and working capital requirements.Adjusted EBITDA is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. The Company presents Adjusted EBITDA because the Company believes it facilitates investors' use of operating performance comparisons from period to period and company to company by backing out potential differences caused by variations in capital structures (affecting relative interest expense), the book amortization of intangibles (affecting relative amortization expense) and the age and book value of property and equipment (affecting relative depreciation expense). The Company also presents Adjusted EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance. Adjusted EBITDA as presented herein is not a recognized measure under IFRS and should not be considered as an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Adjusted EBITDA is defined as consolidated net income (loss) before interest, income taxes, depreciation, amortization, other non-cash expenses and charges which include the movement in the unrealized gains and losses on the Company's redeemable preferred shares and warrants classified as financial liabilities prior to the initial public offering and share based compensation expense.The following table reconciles net loss to Adjusted EBITDA for Q2 2012 and Q2 2011:                       June 30, 2012   June 30,2011Net loss & comprehensive loss        (2,772,608)   (192,018,852)Depreciation and amortization        262,515   145,974Share-based compensation        177,104   217,667Change in value of warrants and preferred shares        -   190,925,114Interest expense (income)        (95,655)   (27,941)Adjusted EBITDA (1)        (2,428,644)   (758,038)About EcoSynthetix Inc. (www.ecosynthetix.com) EcoSynthetix Inc. is a renewable chemicals company specializing in bio-based products that can be used as inputs in industrial manufacturing for a wide range of consumer products. The Company's products offer a reduced carbon footprint and are marketed primarily on the basis of lower cost, stable pricing and equal or superior performance. EcoSynthetix's lead product, EcoSphere® biolatex® binders, is used commercially by a number of the global top 20 manufacturers in the coated paper and paperboard industry.Forward Looking StatementsCertain statements in this Press Release constitute "forward looking" statements that involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, objectives or achievements of the Company, or industry results, to be materially different from any future results, performance, objectives or achievements expressed or implied by such forward looking statements. These statements reflect our current views regarding future events and operating performance and are based on information currently available to us, and speak only as of the date of this Press Release. These forward looking statements involve a number of risks, uncertainties and assumptions and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such performance or results will be achieved. Those assumptions and risks include, but are not limited to, the fact that our results of operations and business outlook are subject to significant risk, volatility and uncertainty. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking statements, including the factors identified in the "Risk Factors" section of the Company's Annual Information Form dated March 30, 2012. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward looking statements prove incorrect, actual results may vary materially from those described in this Press Release as intended, planned, anticipated, believed, estimated or expected. Unless required by applicable securities law, we do not intend and do not assume any obligation to update these forward looking statements.EcoSynthetix Inc. Interim Consolidated Balance Sheets(Unaudited)    (expressed in US dollars)      June 30,2012 December 31,2011     Assets          Current assets    Cash 97,299,476 105,713,705Accounts receivable 2,770,437 3,116,445Inventory 8,602,245 10,243,410Government grants receivable 626,796 639,685Prepaid expenses 181,807 182,842       109,480,761 119,896,087     Non-current assets    Intangible asset 136,509 -Property, plant and equipment 12,869,887 10,766,124     Total assets 122,487,157 130,662,211     Liabilities          Current liabilities    Accounts payable and accrued liabilities 3,244,289 6,142,668               Shareholders' Equity         Common shares  492,382,972 492,353,321     Contributed surplus  6,478,854 6,073,080     Accumulated deficit  (379,618,958) (373,906,858)     Total shareholders' equity 119,242,868 124,519,543     Total shareholders' equity and liabilities 122,487,157 130,662,211               EcoSynthetix Inc.Interim Consolidated Statements of Operations and Comprehensive Loss(Unaudited)        (expressed in US dollars, unless otherwise noted)          Six months ended June 30,    Three months ended June 30,  20122011  20122011        Net sales 7,713,11311,768,227  3,734,7665,609,095        Cost of sales 6,328,5358,923,008  3,110,0024,254,502        Gross profit on sales 1,384,5782,845,219  624,7641,354,593        Expenses       Selling, general and administrative 5,254,4573,401,885  2,538,0242,162,594Research and development 2,031,497733,285  955,003313,678          7,285,9544,135,170  3,493,0272,476,272        Loss from operations  (5,901,376)(1,289,951)  (2,868,263)(1,121,679)        Interest income 189,27645,889  95,65527,941        Loss related to change in value of warrants and redeemable preferred shares  -(246,829,537)  -(190,925,114)        Net loss and comprehensive loss (5,712,100)(248,073,599)  (2,772,608)(192,018,852)        Basic and diluted loss per common share         (0.10)(264.57)  (0.05)(177.95)        Weighted average number of common shares outstanding 55,248,568937,657  55,248,9331,079,036        EcoSynthetix Inc.Interim Consolidated Statements of Shareholders' Equity (Deficiency)(Unaudited)(expressed in US dollars)            Commonshares Equitycomponentofredeemablepreferredshares Contributedsurplus Accumulateddeficit Total                      Balance - January 1, 2011 143,213 19,793,287 2,180,570 (121,198,710) (99,081,640)           Issuance of shares 67,369 - (21,812) - 45,557Share-based compensation - - 411,335 - 411,335Net loss and comprehensive loss - - - (248,073,599) (248,073,599)           Balance - June 30, 2011 210,582 19,793,287 2,570,093 (369,272,309) (346,698,347)                      Balance - January 1, 2012 492,353,321 - 6,073,080 (373,906,858) 124,519,543           Common share options exercised 29,651 - (11,330) - 18,321Share-based compensation - - 417,104 - 417,104Net loss and comprehensive loss - - - (5,712,100) (5,712,100)           Balance - June 30, 2012    492,382,972 - 6,478,854 (379,618,958) 119,242,868           EcoSynthetix Inc.Interim Consolidated Statements of Cash Flows(Unaudited)   (expressed in US dollars)        Six months ended    June 30, Three months endedJune 30, 20122011 20122011Cash provided by (used in)           Operating activities     Net loss and comprehensive loss(5,712,100)(248,073,599)    (2,772,608)(192,018,852)Items not affecting cash      Depreciation and amortization501,932292,034          262,515         145,974 Share-based compensation417,104411,335         177,104         217,667 Change in value of warrants andredeemable preferred shares-246,829,537                      -  190,925,114Changes in non-cash working capital      Accounts receivable346,008(341,309)       (140,693)         502,835 Inventory1,841,523(4,150,389)       1,057,335    (3,710,579) Government grants receivable12,889(190,197)       (104,460)       (254,595) Prepaid expenses1,035(98,405)          (63,901)         (90,799) Deferred share issuance costs-(1,626,682)                      -    (1,626,682) Accounts payable and accrued liabilities(1,122,947)4,723,626          390,202      2,734,218 Accrued compensation-(1,005,371)                      -    (1,029,000) Deferred government assistance-(486,961)                      -                     -       (3,714,556)(3,716,381)     (1,194,506)    (4,204,699)      Investing activities     Cash used for purchase of intangible asset,        property, plant and equipment (4,717,994)(5,472,114)     (1,407,095)    (2,494,011)      Financing activities     Share issuance costs-(604,571)                      -       (604,571)Exercise of share options18,32145,557              2,174           45,557Increase in government grants                        -2,302,904                  -  1,099,422       18,3211,743,890              2,174         540,408      Decrease in cash during the period(8,414,229)(7,444,605)    (2,599,427)    (6,158,302)      Cash - Beginning of period105,713,70535,193,037    99,898,903   33,906,734      Cash - End of period97,299,47627,748,432    97,299,476    27,748,432         SOURCE: EcoSynthetix Inc.For further information: EcoSynthetix Inc. John van Leeuwen Chief Executive Officer Phone: (289) 288-5010 E-mail: jvanleeuwen@ecosynthetix.com Investor Relations Ross Marshall TMX Equicom Phone: (416) 815-0700 (Ext.238) E-mail: rmarshall@equicomgroup.com