Zenon doubles profits in 2Q for record results

Aug. 13, 2004
Zenon Environmental's second quarter profits more than doubled over the same period a year ago to $4.5 million, representing a 104% increase. In addition, earnings per share rose to $0.15 for the quarter ended June 30 and $0.27 for the first six months of 2004, both of which are significantly above the same periods in 2003.

OAKVILLE, ON, Canada, Aug. 10, 2004 (PRNewswire-FirstCall) � Zenon Environmental Inc., a specialist in membrane-based water filtration systems, continues to break historical quarterly milestones.

Its second quarter profits more than doubled over the same period a year ago to $4.5 million, representing a 104% increase. In addition, earnings per share rose to $0.15 for the quarter ended June 30 and $0.27 for the first six months of 2004, both of which are significantly above the same periods in 2003.

"I am happy to report that in the quarter, Zenon booked new orders of $82 million, which is 14% above our first quarter performance," said Andrew Benedek, Zenon chairman and CEO, "leading to another record breaking backlog of $266 million at the end of our second quarter." In addition to this amount, the company has approximately $150 million in projects where Zenon has either been selected with a letter of intent and is waiting to receive the purchase order or is currently working on the engineering phase of a potentially larger order.

Zenon's success continues in its North American business, which accounted for the majority of orders received during the quarter. More than half of the projects were for drinking water applications, affirming the growing market in this segment. In the quarter, Zenon booked drinking water projects in Ontario (Thunder Bay, Ontario will have the second largest plant in the province to date) and Alberta, Canada and in Pennsylvania (where a total of three projects were recently booked), Florida, Kentucky, New Jersey and Maryland in the United States.

"North America has always been a global trendsetter and the same thing is happening for membrane technology," added Mr. Benedek. "As international markets see the way plants are operating in the United States, it is only a matter of time before they make the decision to adopt this same trend. Just as Zenon is in the forefront of leading the growth in membranes in North America, we are also currently focused on developing the international markets as more and more countries throughout Europe and Asia make the move to membranes."

The mid to long-term growth prospects for the company are actually international - Europe and Asia. In the quarter, Zenon's international orders were mainly for wastewater projects, a reflection of the company's core strength as it develops markets for its technologies.

Generally, Zenon enters a new market with industrial orders for its products. As it gains a stronger foothold in the region, these references eventually lead to demand for its technology from the municipal sector. Simultaneously, Zenon is also lowering the cost of its technology, allowing for further market growth in all sectors. It is this strategy that has resulted in the company's success in North America and the same one which Zenon is replicating throughout countries where it has not been as well positioned thus far.

For example, the company's entry into China has been via the industrial route where Zenon has already won three jobs to date. The water shortage situation in China is critical as population growth is exceeding the country's ability to support this expansion through its industries. Zenon's recently opened office in Bejing represents the company's first step to developing this market for the full range of its proprietary products.

In reference to growing the company's business, during the quarter, Zenon completed an equity financing for aggregate gross proceeds of $103.6 million, which will be used for expanding Zenon's global distribution in emerging markets (e.g., China, India and Russia) and the company's manufacturing capacity. Zenon already has a number of international licensees in place, but in addition to this is seeking out a combination of investment and acquisitions to develop strong distribution and delivery capabilities in these and other emerging markets.

In addition, Zenon completed its agreement with Maytag for distribution of the residential product into the U.S. market. The company is confident that this partnership will result in a market for the Maytag Central Water Filtration System that has the potential to grow considerably, once established. Unlike Zenon's municipal and industrial businesses, the consumer market is substantially different in that production must precede demand. Although Zenon expects to achieve near break even in 2004 with its residential product, demand is expected to rise gradually as U.S. distribution ramps up over the next coming years. With this in mind, a portion of the equity proceeds will be used to significantly expand this production line.

Further use of the funds is already under way as the company expands its Canadian and Hungarian manufacturing plants. Production of the company's ZeeWeed

Zenon's market success is also mirrored in its day-to-day overall operations. As such, the Company gained noteworthy recognition during the quarter when Zenon was ranked as Canada's top Corporate Citizen by Corporate Knights, a Canadian business publication addressing corporate responsibility. This marks the second time the Company has been chosen as the best corporate citizen. Zenon has won the top spot in every year in which the company was under consideration by the independent investment research firm ranking Canada's top companies.

Operating Results
Zenon continues to set records for quarter performance. Compared to the second quarter of 2003 revenue for 2004 at $58.7 million was 42% higher. Operating profit for 2004 at $5.3 million was 87% higher and net income for 2004 at $4.5 million was 104% higher. For the six month period ending June 30, revenue at $110 million, operating profit at $9.4 million and net income at $7.8 million were all significantly higher than in 2003 - 41%, 76% and 88% respectively. The company has never produced second quarter results as strong as in 2004.

Nearly 80% of the revenue growth for the quarter, over the same period a year ago, was from the North American market. The North American growth was split almost evenly between Canada and the United States. Also, the major area for revenue growth for the first six months of 2004 was North America. The International markets contributed the balance of the growth and were derived mainly from the Asia-Pacific region. North American growth had previously been predicted based on the bookings pattern in 2003.

Sales bookings in the quarter were $82 million. For the six months ended June 30, sales bookings were $154 million, which is a 48% increase over last year's comparable figure of $104 million. The strong bookings for the year have resulted in a backlog of $266 million, the highest backlog in the Company's history. The 41% increase in backlog compared to June 30, 2003 continues to support management's expectations for the continued growth of the business.

Gross profit for the quarter and the six months ended June 30 was 41% of revenue. Margins are continuing to hold at the higher end of management's expectations as a result of manufacturing and cost efficiencies, as well as product mix. Margins are anticipated to return to traditionally lower levels over the balance of the year.


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