Auto Service World
News   May 22, 2002   by Auto Service World

Prolab on Track for Profitability in Lubricant Business

Prolab reports that its lubricant business will make a profit this year, after reducing overhead and operating costs and expanding distribution agreements.
At the Annual General Meeting of Shareholders held today in Montreal, Jean-Guy Grenier, chairman of the board, president and chief executive officer of Prolab Technologies Inc., said he is confident that the company will achieve a profit on its lubricant operations as of the current fiscal year.
“Formerly distributed by our own network, our products are now offered through large-scale distributors and retailers with a combined total of more than 5,000 points of sale across Canada. That reflects an important strategic turn which is gradually yielding benefits. What’s more, our increase in volume is now compensating for the slight decline in our average selling price resulting from our new distribution method,” he explained to shareholders and investors in attendance.
In the quarter ended March 31, 2002, Prolab recorded sales of $918,000, down from $960,000 in the first quarter of the previous fiscal year. The conclusion of numerous distribution agreements and tight management of operating costs reduced the company’s selling and administrative expenses, from $932,000 in the first quarter of 2001, to $843,000 in the first quarter of the current fiscal year.
“This reduction is just the start,” commented Yvan Beaudoin, Prolab’s vice-president and chief operating officer. “Considering the various measures we have taken, we are confident we can cut our selling and administrative expenses by some 20% in 2002.”
The loss before income taxes amounted to $396,000, representing a slight improvement over the pre-tax loss of $416,000 recorded in the corresponding quarter of the previous fiscal year. The company posted a net loss of $396,000 or $0.02 per share, compared with a net loss of $266,000 or $0.01 per share in the first quarter of 2001. It should be noted that deferred future taxes of $150,000 were recorded in the first quarter of 2001. P
The construction of a plant utilizing a unique used fatty acid conversion process would give the Company a secure, stable and economical supply of oleic acid, a key component in the formulation of biolubricants. This vertical integration would lower the price of its biolubricants so they could better compete against conventional lubricants. While still embryonic, the biolubricant market is growing faster than other segment of the lubricant industry, which generates revenues of approximately US$12 billion in North America. “So far, we have obtained interest for close to $29 million – which is almost 70% of the capital needed to build the plant. To make up the difference, we have concluded, in conjunction with SGF, that the ideal scenario would be to find a strategic partner. Moreover, several companies we have approached, all of them major consumers of oleic acid, have shown an interest in our project,” said Mr. Beaudoin.
Building an oleic acid production plant is a long-term strategic project. Management is putting forth the necessary efforts while striving to achieve a profit on its lubricant formulation and marketing operations. In 2002, Prolab intends to take full advantage of its extensive distribution network, which recently added the sales outlets of Traction, a UAP division specializing in heavy equipment. In addition, management plans to further penetrate markets outside Quebec, notably by providing training to new account managers and distributors who represent it in other Canadian provinces.
“We have put together all the main ingredients for a winning formula: superior products, a large manufacturing capacity and an extensive distribution network. We will ensure that these assets enable us to increase our sales, which will translate ultimately into a distinct improvement in the company’s profitability,” concluded Mr. Grenier.

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