QUEBEC CITY, QUEBEC (TSX VENTURE: HEO)(ALTERNEXT:MNEMO:ALHEO)
continues to develop in promising markets and announces that on
July 3, 2008, an H2O subsidiary has indirectly acquired 100% of the
issued and outstanding shares of Itasca Systems Inc. ("Itasca"), a
privately owned company with six individual shareholders dealing at
arm's length with H2O. Located in Minneapolis, Minnesota (USA),
Itasca specializes in treating industrial process water, notably
for the energy sector. This transaction will allow H2O to diversify
its products and services offering in order to serve the fast
growing industrial market and to achieve revenues of CA$ 18.5
million on a consolidated pro forma basis as of June 30, 2007.
These revenues do not account the full contribution of the
acquisitions of Wastewater Technologies Inc. ("WTI") and Sigma
Environmental Solutions Inc.
Transaction highlights:
- Immediate access to an industrial customers list as well as to
a reference list of 150 projects realized mostly in the energy
sector - to allow client diversification beyond the municipal
sector already served by H2O;
- Improve the average consolidated operational gross margin;
- Accelerate revenue recognition due to shorter delivery
schedules and execution of industrial projects;
- Itasca in numbers:
- sales backlog of approximately US$1.8 million, growing H2O's
consolidated sales backlog to CA$21.5 million as of the closing
date;
- sales of US$13.1 million and an EBITDA of US$2.9 million based
on the audited financial statements of Itasca for the year
ended December 31st 2007;
- sustained revenue growth and continuous profitability for the
last 5 years;
- Acquisition of a 37,000 ft2 manufacturing and assembly
facility in Minneapolis vicinity, providing a strategic
manufacturing alternative to H2O's US-based customers.
Itasca financial highlights:
The following table comprises data from Itasca audited financial
statements for the year ended December 31st 2007 and the unaudited
financial statements for the 3-month period ended March 31st
2008.
December 31, December 31, March 31, March 31,
2007 2006 2008 2007
12 months 12 months 3 months 3 months
(Audited) (Audited) (Unaudited) (Unaudited)
------------------------------------------------------------------------
US$ US$ US$ US$
Assets 4 684 233 3 289 400 4 034 614 3 766 938
Liabilities 2 964 804 2 203 791 1 728 301 2 012 507
Equity 1 719 429 1 085 609 2 306 313 1 754 431
Sales 13 066 476 6 523 365 2 969 938 2 945 406
Net income 2 726 989 814 618 586 884 668 821
Acquisition of an industrial water treatment specialist
Founded in 1995, Itasca is based in Minneapolis, Minnesota. It
designs, builds, and services membrane filtration systems. Since
its founding, Itasca has installed 150 water treatment systems for
many industrial applications related to the energy sector, notably:
power generation plants, cellulose and non-cellulose ethanol plants
as well as food-process industries, and also for the municipal
sector. Most of these systems have maintenance and supply contracts
that have been generating recurring revenues of more than 15% of
Itasca's annual sales.
Itasca operates in a promising market in the United States and
is located in one of the two regions most active in the water
treatment sector, the other being California, where H2O is already
present with its subsidiary, Membrane Systems Inc. ("MSI"). Itasca
is the third acquisition - after WTI and MSI - by H2O in the United
States, which is a particularly dynamic sector for industrial and
municipal water treatment projects.
Major synergies and complementarities
In addition to technological and geographical synergies, the
acquisition of Itasca will give H2O a new 37,000 ft2 plant in the
United States in a region generally recognized to offer highly
skilled labor at an attractive cost as well as a production and
technology platform that resembles and complements H2O
manufacturing facilities in Ham-Nord (Quebec), Canada.
Typically, water treatment systems dedicated to industrial
sector are usually executed and delivered a short time schedule.
Average time between contract signing and project completion is 4
to 6 months compared to 10 to 12 months for the average municipal
contract. This results in faster turnover in its sales backlog
(currently US$1.8 million), bringing the H2O consolidated sales
backlog at CA$21.5 million to date.
Itasca's industrial sales orientation will immediately leverage
and diversify H2O offer for process water applications, where gross
margins are typically higher than municipal water applications and
where H2O expertise in membrane solutions can be a real competitive
advantage. Going forward, Itasca's industrial customer base will
also benefit from H2O expertise in wastewater applications using
the Company's proprietary or customized bio-reactor and submerged
membrane bio-reactor (Bio-Brane (TM)) solutions.
Improvement of H2O's margins
Itasca, which currently employs 21 people, announced sales
figures of US$13.1 million for the year ended December 31, 2007,
and EBITDA of US$2.9 million. Moreover, during this same financial
period, Itasca has generated positive cash-flow of US$2.2 million
from operation. Over the last five fiscal years, Itasca's gross
profit margin has hovered between 28% and 30% whereas net
profitability has continued to grow.
On a pro forma basis, the consolidated financial statements for
the nine-month period ended March 31, 2008 shows the following
characteristics:
- Consolidated revenues figures of CA$16.8 million
- Gross profit margin of CA$4.3 million (25.6% of the
revenues)
Consideration
The total consideration for the acquisition is US$18.9 million
paid as follows: US$9.45 million in cash at closing and US$9.45
million paid by the issuance of common shares of H2O at a weighted
average price equal to the closing price of H2O shares on the TSX
Venture Exchange during the twenty (20) trading days preceding the
date of closing of the acquisition, as calculated in U.S. dollars
using the exchange rate between Canadian and U.S. dollars on those
dates as published by the Wall Street Journal: 0.902$ per common
share for a total of 10 476 718 common shares.
Furthermore, the acquisition of Itasca is entirely funded within
H2O working capital. At closing, Itasca shall present in its
balance sheet a minimum net book value (excluding the intangible
assets) of US$1.4 million. The consideration will be adjusted in
order to take into account the variation of the equity on the
closing date. Thus, H2O will indirectly assume certain liabilities
and the subordinated debt of US$1.275 million as set forth in the
balance sheet of Itasca at the time of closing. The subordinated
debt is reimbursed from the US$9.45 million cash payment at
closing.
A Business Acquisition Report including financial information
required, pursuant to Canadian applicable securities laws, has been
filed and is available on SEDAR web site (www.sedar.com).
About H2O
H2O's mission is to design, develop, produce and integrate
state-of-the-art, environmental friendly products dedicated to the
production of drinking water, the treatment of wastewater and
industrial processed water, and the reclamation of water.
Forward looking statements
Certain statements in this release are forward looking. These
statements are based on H2O's current expectations and involve some
risks and uncertainties. By their very nature, forward-looking
statements are based on expectations and hypotheses and also
involve risks and uncertainties, known and unknown, many of which
are beyond H2O's control. As a result, investors are cautioned not
to place undue reliance on these forward-looking statements. The
forward-looking statements regarding the market acceptance and
penetration of H2O technologies and products and future revenues
are based on management expectations. In addition, the reader is
referred to the applicable general risks and uncertainties
described in H2O's most recent Annual Information Form under the
heading "Risk Factors".
The TSX Venture Exchange Inc. and the Alternext Exchange have
not reviewed and do not accept responsibility for the adequacy or
accuracy of this release.
Contacts: H2O Innovation (2000) Inc. Guy Goulet Chairman of the
Board and CEO 450-227-1150 ggoulet@h2oinnovation.com H2O Innovation
(2000) Inc. Frederic Dugre President and COO 418-688-0170
fdugre@h2oinnovation.com
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