Operational Highlights
Cylinder and system sales for the three months ended March 31, 2009 were CAD5.8 million, an increase of 79%, compared to CAD3.2 million for the same period of 2008. The company’s EBITDA for the three months ended March 31, 2009, was positive compared to negative EBITDA of (CAD0.7) million for the three months ended March 31, 2008.
In the first quarter of 2009, revenue from the European operations increased 104%, due to stronger sales activities and fewer postponed and cancelled orders, compared to the first quarter of 2008. North American revenue increased 6% in the first quarter of 2009 compared to the same quarter of 2008, inspite of increased competition and customer requests to defer orders to the third quarter of 2009.
For the three months ended March 31, 2009, the company achieved research and development revenue of CAD1.1 million, compared to CAD1.2 million for the same period of 2008. In the third quarter of 2009, Dynetek expects to deliver the third and final milestone under its contract with Magna Steyr, in connection with Daimler’s automotive fuel cell program. The program involves the development, certification and supply of 700bar compressed hydrogen fuel storage systems to Magna Steyr in connection with Daimler’s fuel cell program.
The company continues to maintain consistent levels of liquidity as working capital was CAD15.1 million at March 31, 2009, compared to CAD15.8 million at December 31, 2008.
Outlook
The company remains committed to continuing to grow its compressed natural gas (CNG) and Hydrogen revenue streams through targeted marketing initiatives. The company will have a stronger short-term focus on its CNG activities due to a persistent economic lull in hydrogen market activities. However, Dynetek believes that the market for compressed hydrogen enabling technologies will continue to develop over the next few years in conjunction with nearer term hydrogen industry energy applications.
In 2009, the company expects to increase its focus on revenue growth opportunities in the CNG market for bus and heavy-duty truck applications and for bulk hauling of larger quantities of compressed gas. The company will continue to market and deliver its Mobile Gas Distribution System, a lightweight tube trailer designed for the gas utility industry. Currently, the company continues to develop and test new products for the CNG market.
Major economic and environmental factors worldwide are contributing to high-growth in natural gas demand for vehicles as follows:
The high growth rate in demand for natural gas stems from the comparative advantages of natural gas compared to diesel, gasoline and bio-fuels;
Natural gas is cleaner with less toxic emissions than diesel or gasoline and is currently less costly;
A growing natural gas infrastructure. Continuing investment in infrastructure is adding to the number of compressed natural gas refueling centers; and
CNG will continue to develop as a transportation fuel as it currently is less costly than oil based fuels which are also becoming supply constrained in developing economies.
The above trends and related market opportunities are expected to create a positive intermediate and longer-term outlook for Dynetek. The company does anticipate new legislation to improve and maintain the North American environment, which could lead to increased sales of its CNG systems. Turbulence in the global financial markets has negatively impacted the financial abilities of certain industries. In response, Dynetek will narrow its focus of its marketing activities to geographical areas that generate revenues for the company or potential to contribute significant revenue through CNG growth.
Dynetek expects to record increased revenue and EBITDA in Q2 of 2009 due to increases in demand for its products, especially from European customers. The company has forecasted for Q2 of 2009 to surpass the financial results from Q1 of 2009 and in comparison to Q2 of 2008.
In response to the turbulent economic conditions experienced in North American and Europe during the fourth quarter of 2008 and first quarter of 2009, the company continues to manage its costs responsibly and improve production efficiencies where possible. For the second quarter, the company has reduced production and administrative staff to core levels and continues to review supplier alternatives.
