Business News

Delphax Technologies Announces Results for Fiscal 2008 Third Quarter

Thursday 14. August 2008 - Company Expects Improved Sales and Return to Profitability in Fourth Quarter

Delphax Technologies Inc. (Pink Sheets: DLPX), a global provider of high-speed digital printing systems, today reported net sales of $9.6 million for the third quarter ended June 30, 2008, compared with $10.7 million in the same period a year earlier. Including a charge of $1.9 million for a previously disclosed workforce reduction and an inventory valuation adjustment of $2.0 million, the fiscal 2008 third-quarter net loss was $4.9 million, or $0.75 per share, compared with a net loss of $372,000, or $0.06 per share, for the third quarter of fiscal 2007.

For the nine months ended June 30, 2008, net sales were $29.5 million, compared with $33.7 million for the same period of 2007. The net loss was $7.1 million, or $1.09 per share, compared with $387,000, or $0.06 per share, a year earlier.

“Our results for the third quarter were in line with the actions we announced in May to clear the way for a return to profitability in our fiscal fourth quarter,” said Dieter Schilling, president and chief executive officer. “Despite a less than robust operating environment, we believe we are on track to accomplish that objective.”

During the third quarter, Delphax restructured its approach to marketing its CR Series roll-fed presses, reducing overall investment in the product and initiating a related workforce reduction.

“It was essential for us to reestablish a balance between the cost of developing a new and potentially profitable growth strategy on one hand and an ongoing opportunity to pursue the full potential of our established and fundamentally profitable core business on the other,” Schilling said. “We believe we made that adjustment in the third quarter, intensifying our focus on the security printing industry, without sacrificing the long-term potential of our newer CR Series product line.

“The CR Series remains an important part of our product set, offering industry-leading speed and productivity advantages in a number of commercial printing applications. We were pleased with the response to a month-long series of individual performance demonstrations conducted at our headquarters in Minnesota during the third quarter. Approximately 50 representatives of printing and publishing companies from throughout North America accepted invitations to in-depth introductions to our top-of-the-line 500-feet-per- minute CR 2200. In this more economical and highly focused approach to marketing, we worked closely with industry finishing partners to demonstrate a complete in-line production system, often providing customized solutions to fit visitors’ specific needs.”

Fiscal 2008 third-quarter sales of maintenance, spares and supplies were $9.5 million, compared with $10.3 million for the third quarter of fiscal 2007. Equipment sales were $171,000, down from $366,000 a year earlier.

Gross margin for the third quarter of fiscal 2008 was $331,000, or 3 percent of net sales, down from $3.4 million, or 32 percent of net sales, for the third quarter a year earlier. The gross margin for the third quarter of fiscal 2008 was affected by the inventory valuation charge of $2.0 million.

Fiscal 2008 third-quarter operating expenses were $4.8 million, which included the restructuring charge of $1.9 million related to the workforce reduction, compared with $3.3 million for the third quarter of fiscal 2007.

The company said it continues to project a return to profitability in the fourth quarter on the strength of improved equipment sales and reduced operating expenses. It expects to recognize revenue from the previously reported sale of a CR Series press in Europe and from the installation and upgrade of another CR Series press in South Africa. Much of the $1.5 million sales backlog reported earlier has been shipped — primarily equipment related to the security printing industry — with most of that revenue expected to be recognized in the fourth quarter.

Finally, the company noted that on Aug. 7, 2008, Harland Clarke Corp., Delphax’s largest customer, acquired the interests of Wells Fargo Bank, National Association and Wells Fargo Financial Corporation Canada (collectively, “Wells Fargo”), Delphax’s senior lenders under the company’s senior credit facilities. Harland Clarke is now the senior lender under the senior credit agreements that formerly were with Wells Fargo.