Eurocontrol Technics Group Inc.
TSX VENTURE : EUO

Eurocontrol Technics Group Inc.

November 26, 2015 09:55 ET

Eurocontrol Reports Third Quarter 2015 Results

Record nine month revenue of $5,658,885 including discontinued operations

TORONTO, ONTARIO--(Marketwired - Nov. 26, 2015) -

NOT FOR RELEASE IN THE UNITED STATES OR TO U.S. NEWS WIRE SERVICES.

Eurocontrol Technics Group Inc. (TSX VENTURE:EUO) ("Eurocontrol" or the "Company"), a Canadian public company specializing in the acquisition, development and commercialization of innovative energy security, authentication, verification and certification technologies, announces that it has filed its financial statements and Management's Discussion and Analysis ("MD&A") for its third quarter ending September 30, 2015.

On November 6, 2015, the Company entered into a purchase agreement (the "Purchase Agreement") to sell 100% of its wholly owned subsidiary, Global Fluids International S.A. ("GFI") to SICPA Finance SA ("SICPA"), a subsidiary of SICPA SA, each a privately owned company based in Switzerland, in exchange for cash and post-closing earn-out payments and certain additional payments as further described below. The completion of the transactions contemplated by the Purchase Agreement is subject to the prior satisfaction of a number of conditions, including the approval of the sale of GFI by the Company's shareholders, which approval will be sought at a special meeting of shareholders that has been scheduled for December 18, 2015, and the final approval of the TSX Venture Exchange. However, notwithstanding these conditions, in accordance with International Financial Reporting Standards ("IFRS"), the financial statements and MD&A are presented on an adjusted basis to include discontinued operations. For a reconciliation of discontinued operations, readers should refer to "Adjusted Revenue and Profit from Continuing Operations" and the "Reconciliation of IFRS to Adjusted Results" as presented below and in the MD&A.

Bruce Rowlands, Chairman and Chief Executive Officer of the Company stated: "Our third quarter results are in line with our expectations as we head towards the special meeting of shareholders on December 18, 2015 for the approval of the sale of GFI. The transaction builds on the foundation constructed by Eurocontrol over the past 10 years, and the long term supply and support agreement to be entered into by Xenemetrix and GFI is expected to provide Eurocontrol with the resources necessary to grow the businesses of its remaining subsidiaries and also allow the Company to continue to have significant exposure to the fuel marking market, where we began, through guaranteed minimum earn-out payments."

Key Financial Highlights for the nine months ended September 30, 2015, including discontinued operations

  • Adjusted consolidated EBITDA, including discontinued operations, increased by $299,634 or 74% to $702,652;
  • Adjusted consolidated revenues, including discontinued operations, increased by 25% to $5,658,885 as compared to $4,502,508 in the prior year. This increase is mainly due to increased sales of fuel marker plus the impact of the depreciation of the Canadian dollars versus the US currency;
  • Adjusted cash flow from operating activities, including discontinued operations, increased to $300,367 from $40,892 in the prior year;
  • Adjusted cash flow from investing activities, including discontinued operations, increased to $219,108 from $-38,753 in the prior year;
  • Investment in R&D increased by 128% to $1,076,330 towards developing EDXRF technology and automated 2D and 3D image processing technologies for the Semiconductor and related microelectronics industries.
Three Months Ended September 30, Nine Months Ended September 30,
2015 2014 2015 2014
$ $ $ $
Revenue:
- from continuing operations 275,491 419,271 868,799 1,192,135
- from discontinued operations 1,734,405 1,193,066 4,790,086 3,310,373
Total revenue 2,009,896 1,612,337 5,658,885 4,502,508
Cost of sales:
- from continuing operations
Cost of sales - direct production costs (99,936 ) (168,189 ) (383,556 ) (556,872 )
Cost of sales - amortization and other non cash items (44,348 ) (44,348 ) (133,045 ) (133,045 )
(144,284 ) (212,537 ) (516,601 ) (689,917 )
- from discontinued operations
Cost of sales - direct production costs (520,455 ) (453,176 ) (1,544,475 ) (1,328,855 )
Cost of sales - amortization and other non cash items (68,953 ) (68,953 ) (206,858 ) (206,858 )
(589,408 ) (522,129 ) (1,751,333 ) (1,535,713 )
Gross profit - continuing operations 131,207 206,734 352,198 502,218
Gross profit - discontinued operations 1,144,997 670,937 3,038,753 1,774,660
Expenses - continuing operations (1,046,951 ) (712,668 ) (2,699,165 ) (1,853,103 )
Expenses - discontinued operations (343,878 ) (201,411 ) (687,362 ) (495,629 )
Other (expense) income - continuing operations (88,095 ) (46,317 ) 188,803 (37,086 )
Other (expense) income - discontinued operations (9,529 ) 84,675 49,213 41,201
Income tax expense - discontinued operations (3,462 ) (4,029 ) (18,691 ) (16,280 )
Net income (loss) - continuing operations (1,003,839 ) (552,251 ) (2,158,164 ) (1,387,971 )
Net income (loss) - discontinued operations 788,128 550,172 2,381,913 1,303,952
Net income (loss) (215,711 ) (2,079 ) 223,749 (84,019 )
Basic and fully diluted loss per share
- from continuing operations (0.01 ) (0.01 ) (0.02 ) (0.02 )
- from discontinued operations 0.01 0.01 0.03 0.01
- net income (loss) (0.00 ) (0.00 ) 0.00 (0.00 )
EBITDA (58,671 ) 153,600 702,562 402,928
EBIT (195,291 ) 26,034 292,616 7,013

Strategic Positioning

The Company has been focused on implementing a strategic plan designed to increase the Company's value and create opportunities for growth. This strategic plan involves completing the transactions contemplated by the Purchase Agreement, which are intended to: (1) result in a reorganization of the Company's operations by narrowing the numbers of divisions in which it operates and allow the Company to focus its resources and capital on its remaining businesses and pursue higher growth strategies; (2) strengthen the Company's financial position to execute these strategies; and (3) enhance shareholder value by monetizing assets. Further details are included below under Discontinued Operations.

Areas of Focus Going Forward

Upon closing of the sale transaction, the Company's remaining operations will be through its two remaining wholly-owned subsidiaries Xenemetrix Ltd. ("Xenemetrix") and XwinSys Technology Development Ltd. ("XwinSys"). The Company intends to focus on growing Xenemetrix's existing business through Xenemetrix's ongoing support of GFI's business, on an exclusive basis, in the field of oil and gas marking and monitoring, and through its ongoing activities relating to the design, development, production and marketing of ED-XRF systems in the marine sector and in other potential markets. In addition, the Company plans to continue its development of its current XwinSys business, dedicated to the design, manufacture and marketing of novel solutions based on ED-XRF combined with automated 3D Vision for the semiconductor and related industries. This strategy is intended to achieve increased sales in Xenemetrix's current markets and generate new sales opportunities for both Xenemetrix and XwinSys, all with a view to producing strong free cash flows and returns on capital, with moderate levels of sustained capital investment.

In particular, going forward, Eurocontrol intends to focus its business growth efforts in the following areas: (1) material analysis on mobile platforms; (2) monitoring solutions for marine vessels and geological mapping; (3) ED-XRF agricultural applications in precision farming; and (4) ED-XRF/2D-3D Semiconductor and related microelectronics industry applications. Management of the Company believes that there will be increased demand for ED-XRF technology and automated 2D and 3D image processing technologies in these areas and, as a result, new opportunities for the Company to capitalize on this demand.

The proceeds of the disposition of GFI are expected to be used in connection with the above-mentioned business objectives, for pursuing and developing new opportunities for growth within the authentication and certification markets and for other general corporate purposes.

Discontinued Operations

On November 6, 2015, the Company entered into the Purchase Agreement, pursuant to which the Company has agreed to sell 100% of its wholly owned subsidiary, GFI, to SICPA in exchange for cash and post closing earn-out and additional payments. As a key part of the transaction, the Company, through its wholly owned subsidiary, Xenemetrix, has agreed to enter into a strategic exclusive long term supply, maintenance and support agreement, pursuant to which Xenemetrix will continue to supply to GFI, Xenemetrix's products and services currently used by GFI in its business, in each case, on an exclusive basis within the oil and gas marking and monitoring field of GFI's current operations. The consideration payable to the Company for the sale of GFI is as follows:

  • Cash consideration payable to the Company by SICPA on closing of $16 million (less the $250,000 deposit received by the Company and $286,000 in transaction payments, and assuming that, on closing, GFI has positive working capital of $1,000,000), subject to a working capital adjustment.
  • Post closing earn-out payments equal to 5% of the net revenues earned by GFI from contracts entered into by it following the execution of the Purchase Agreement and during the period ending six years from the closing of the transaction, with a minimum guaranteed of $1.5 million per year for the six years earn - out period (total payment of at least $9,000,000).
  • Additional post closing payments equal to 5% of the net revenues earned by GFI from contracts signed during the fourth through sixth years following closing paid until the third anniversary of such contracts.
  • The settlement of intercompany loan amounts owing by Eurocontrol to GFI.

The transaction is expected to close between December 18, 2015 and January 4, 2016. In accordance with IFRS, assets and liabilities related to GFI have been classified as "held for sale" and are measured at the lower of their carrying amount and fair value less costs to sell in the consolidated statements of financial position. The operating results for the three and nine months period ended September 30, 2015 and 2014 related to GFI have been presented separately as the loss from discontinued operations in the consolidated statements of income (loss) and comprehensive income (loss).

GFI three and nine months ended September 30, 2015 and 2014 from discontinued operations

Three month
period ended
September 30,
2015
Three month
period ended
September 30,
2014
Nine month
period ended
September 30,
2015
Nine month
period ended
September 30,
2014
Revenue 1,734,405 1,193,066 4,790,086 3,310,373
Cost of sales (520,455 ) (453,176 ) (1,544,475 ) (1,328,855 )
Direct amortization (68,953 ) (68,953 ) (206,858 ) (206,858 )
Gross profit 1,144,997 670,937 3,038,753 1,774,660
Consulting and management (116,580 ) (37,676 ) (232,454 ) (134,957 )
Depreciation (16,364 ) (8,239 ) (45,081 ) (34,846 )
Administration (81,732 ) (30,412 ) (253,617 ) (165,966 )
Research and development (129,202 ) (125,084 ) (156,210 ) (159,860 )
Total expenses (343,878 ) (201,411 ) (687,362 ) (495,629 )
Income before the undernoted 801,119 469,526 2,351,391 1,279,031
Finance (loss) income 172 (175 ) 16 (688 )
Foreign exchange 7,257 108,934 99,373 116,641
Finance expense (16,958 ) (24,084 ) (50,176 ) (74,752 )
Income before taxes 791,590 554,201 2,400,604 1,320,232
Income tax expense (3,462 ) (4,029 ) (18,691 ) (16,280 )
Income from discontinued operations 788,128 550,172 2,381,913 1,303,952

The cash flows used by operating activities from the discontinued operations during the nine month period ended September 30, 2015 was $137,823 (September 30, 2014 - cash flows provided by of $262,117).

The cash flows used in investing activities from the discontinued operations during the nine month period ended September 30, 2015 was $31,529 (September 30, 2014 - cash provided of $299,374).

The cash flows used by investing activities from the discontinued operations during the nine month period ended September 30, 2015 was $284,243 (September 30, 2014 - $260,898).

As at September 30, 2015 and December 31, 2014, the assets and liabilities held for sale were comprised of:

September 30, 2015 December 31, 2014
Assets
Cash $ 1,620,446 $ 1,813,280
Amounts receivable 388,389 95,753
Inventory 328,251 351,651
Prepaid expenses 19,585 11,965
Equipment 140,700 131,796
Technology rights 1,727,835 299,900
Deferred development costs 271,785 299,900
$ 4,496,991 $ 2,704,345
Liabilities
Trade and other payables $ 486,508 $ 404,193
Loans payable 969,888 1,150,165
$ 1,456,396 $ 1,554,358

Details pertaining to various assets listed and liabilities held for sale are contained below:

Outlook

With the anticipated sale of GFI to SICPA, the Company has identified a number of acquisition opportunities that it plans to perform due diligence on. Additionally, investments in R&D programs within Xenemetrix and Xwinsys, the Company's two remaining wholly owned subsidiaries, will be a priority. The growth of Eurocontrol through acquisitions and integration of complementary businesses is an important component of the Company's business strategy. Eurocontrol continues to seek opportunities to acquire or invest in businesses, products and technologies that are complementary and would provide for expansion in the areas of authentication, verification and certification.

About Eurocontrol Technics Group Inc.

Eurocontrol through its three wholly owned subsidiaries, Global Fluids International S.A. ("GFI"), Xenemetrix Ltd. ("Xenemetrix") and XwinSys Technology Development Ltd. ("XwinSys"), is a leading provider and innovator of detection and marking systems worldwide. GFI and Xenemetrix are global pioneers in developing and implementing innovative molecular marking systems for the oil industry and XwinSys is currently a development stage company. GFI's unique and proprietary liquid authentication system, Petromark™,is the world's leading solution for fully integrated oil marking, mixing and detection. Xenemetrix is a leading designer, manufacturer and marketer of energy-dispersive x-ray fluorescence ("ED-XRF") systems, a technology that is the most accurate and economic method for determining the chemical composition of many types of materials, including the analysis of petroleum oils and fuel. XwinSys is developing technology and intellectual property that will combine 2D and 3D image processing technology from Brossh Inspection Systems Ltd. of Israel with Xenemetrix's ED-XRF technology for application in the semi-conductor manufacturing process.

For further information on Eurocontrol, please visit the Company's website at www.eurocontrol.ca.

Forward-looking statements:

This press release may contain forward-looking statements about the transaction, the sales of GFI and the supply agreement described herein, certain of the Company's current plans, goals and expectations relating to future sales and business of the Company, GFI and Xenemetrix and financial conditions, performance, results, strategy and objectives. Statements containing the words: 'believes', 'intends', 'expects', 'plans', 'seeks' and 'anticipates' and any other words of similar meaning are forward-looking. All forward-looking statements involve risk and uncertainty because they relate to future events and circumstances beyond the Company's control. As a result, the Company's actual financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements. Any forward-looking statements are made as of the date of this release and, other than as required by applicable securities laws, the Company does not assume any obligation to update or revise them to reflect new events or circumstances. A description of assumptions used to develop such forward-looking information and a description of risk factors that may cause actual results to differ materially from forward-looking information can be found in the Company's disclosure documents on the SEDAR website at www.sedar.com.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

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